Income tax rules on sale of physical gold, gold mutual funds, Sovereign Gold Bonds2 min read . Updated: 22 Nov 2020, 10:09 AM IST
Income tax implications on sale of gold
Profits on selling gold attracts income tax. The taxation rules depend on the form of gold redeemed. We can purchase gold in multiple ways -- physical gold via jewellery or coins, gold mutual funds or gold Exchange Traded Funds (ETFs), smart or digital gold and Sovereign gold bonds (SGBs) issued by the RBI. There is a slight difference in the way the capital gains on sale of different forms of gold, as mentioned above are taxed. Read on to know the income tax implications on sale of gold.
Income tax rules for capital gains on sale of physical gold
Capital gains on selling physical gold jewellery and coins follow the same taxation rules as that of capital gains in debt funds. The short-term capital gains will be added to your income and taxed as per your applicable income tax slab. If the holding period of physical gold is lesser than three years from the date of purchase, the gains are considered as short term capital gains.
Long term capital gains will be taxed at 20% after indexation. If the holding period of gold is more than three years, the gains on selling the gold would be long term capital gains.
Indexation is a process that allows to inflate the purchase price of the asset to take into account the impact of inflation. Indexation considers the inflation from the time you invested in the asset till the time you sell it.
Income tax rules for capital gains on sale of gold mutual funds, gold ETFs
Capital gains on sale of gold funds and gold exchange traded funds (ETFs) also follow the same taxation rules as that of capital gains in debt funds. The taxation rules mentioned above will apply.
A gold ETF is a passive form of investing which invests in physical gold.
Income tax rules for capital gains on sale of digital gold
Digital gold or smart gold is a comparatively new concept. Many banks, online investment portals have tied up with MMTC-PAMP or SafeGold to sell gold through their platforms. Capital gains on sale of digital gold is also taxed just like physical gold or gold mutual funds or gold ETFs. The same rules as mentioned above will apply.
Income tax rules for capital gains on redemption of Sovereign Gold Bonds (SGBs)
Capital gains arising at the time of maturity of Sovereign Gold Bonds (SGBs) will be entirely tax-free. SGBs come with a maturity period of eight years, with an early exit option from the fifth year.
In case you exit earlier (before maturity), via the secondary market, capital gains tax will be applied similar to what is applicable for physical gold or gold mutual funds or gold ETFs.
SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India.
Gold bonds pay interest at the rate of 2.50% per annum and this interest is entirely taxable as per your tax slab. No tax is deducted at source.