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Investments in gold have been a very popular choice for investors across the world. Many investors rely on gold as a safer option for stable returns.

With increasing uncertainty in the stock markets, investors in gold have gained more prominence as a safe haven investment that generates consistent returns.

While physical gold is the oldest form of gold investment, there have been many new avenues to invest in gold in the recent years. Digital gold, physical gold, paper gold and derivative contracts are some types of gold investments available in the current times.

While Physical gold contains jewellery, coins, bars, digital gold can be bought through mobile wallets. Paper gold includes gold bonds, gold ETFs etc while derivatives are when you buy gold in the commodities market.

Types of gold investments: 

Physical gold: Gold jewellery, coins, bars etc

Digital gold: Gold through mobile wallets like Paytm, Google Pay

Paper gold: Gold Bonds, Gold ETFs, Gold Mutual Funds etc

Derivatives contract Buying gold through commodity market

Individuals invest in different forms of gold depending on their financial goals. However, different forms of gold are taxed differently. Like tax implications of physical gold is not the same as that of gold bonds.

It is necessary to be aware of the tax implications of the different gold investments before starting an investment.

Physical gold

Taxation on physical gold like jewellery or coins depends on how long you have held them for. The capital gains of physical gold investment are taxed on the basis of long term and short term depending on the duration.

If you sell the gold within 3 years of buying, you will incur short term capital gains tax while if you hold and sell after 3 years you will incur long term capital gains tax.

For the short term, the capital gains will be added to your total taxable income and taxed at your income tax slab rate.

For the long term, your capital gains will be taxed at 20% plus a 4% cess and additional surcharge if applicable.

Also you will have to pay GST of 3% on purchase of physical gold plus making charges in case of jewellery. While selling physical gold, TDS will not be applicable but if you buy gold jewellery of over 2 lakh in cash, then 1% TDS is applicable.

Digital gold

Digital gold is also taxed at the same rate as physical gold and is dependent on the duration of the investment held. LTCG is applicable on selling gold after 3 years at a rate of 20% plus cess and surcharge. However, returns on digital gold held for less than 3 years are not taxable directly.

Digital gold is becoming increasingly popular among investors due to its many benefits like a very low initial investment, can be bought online, no stress of storing the physical gold etc.

Paper gold

Paper gold, which includes gold ETFs, gold mutual funds and sovereign gold bonds (SGBs), are gold that are held on paper and or physically.

Among these the gold ETFs and gold mutual funds are taxed the same as physical gold, however, taxation on SGBs are a bit different.

For gold ETFs and mutual funds, LTCG is applicable when held for over 3 years. The rate is also the same - 20% plus 4% cess. and for investments less than 3 years, the gains are added to your taxable income and taxed as per your IT slab.

For SGBs

A SGB receives an interest of 2.5% per annum, which is added to your taxable income and charged as per your slab. However, any profits you make through SGBs after 8 years are tax free.

SGBs have a lock-in period of 5 years, however, in case of a premature withdrawal, different tax rates apply. In case of withdrawal after 5 years but before 8 years, the gains will incur LTCG tax at 20% plus 4% cess.

Gold derivative

Returns from gold derivatives are only available to businesses and are taxed very differently.

Returns from gold derivatives can be claimed as business income and taxed at 6 percent if the firm's total turnover is less than 2 crore. This reduces the tax burden for such firms.

However, it cannot be included as a business income if the turnover is over 2 crore.

Gold as a gift

If gold is received as a gift from parents, siblings, or children, it is tax free. But if you get it as a gift from someone apart from them, you'll have to pay taxes as per your IT slab if the total gift amount reaches 50,000. Gold as a gift below 50,000 from anyone is tax free.

However, selling the gold will be taxable at the same rate as physical gold.

Gold is one of the most popular forms of investment, but it is important for investors to know how their gold investment will be taxed. Now that we know the different taxation criteria for different gold investments, you can choose which investment form suits you the best.

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