Taxation on GOLD

For Indians, gold is more than a precious metal. In fact, the reverence for gold is beyond its market value for a common man. There are three main forms of buying and holding Gold in your portfolio. This article is mainly to make you aware about taxation on it – how it is taxed at the time of buying and selling?

We will cover three main forms of buying and selling Gold and its taxation – Physical Gold, Paper Gold and Digital Gold.

Taxation of Gold

CA Mitesh and Associates Chartered Accountants Mumbai

Physical gold

The most common way of buying gold is in the form of jewellery, coins and gold bars. However, most of us are clueless about how these are taxed when we sell or exchange them for jewellery with a different design.

According to income tax laws, the taxation of this form of gold depends on how long you have held the gold jewellery/coins. The capital gains arising from the sale of gold will be short-term or long-term depending on the time period for which the gold has been held.

The capital gains on sale of this form of gold will be classified as short-term if the difference between the date of buying and selling is less than three years (36 months). Such short-term capital gains will be added to your gross total income and taxed at the income tax rates applicable to your income slab.

If the difference between date of buying and selling exceeds the period of three years (36 months), then the capital gains are classified as long-term. These gains are taxed at 20 per cent along with surcharge, if any, plus cess at 4 per cent with the indexation benefit.

Also, one should remember that you will be charged Goods and Service Tax (GST) at the time of buying. The GST is charged at 3 per cent on the value of gold plus making charges.

Paper gold

Another way of buying gold is by investing in gold mutual funds, gold ETFs and/or SGBs (Sovereign Gold Bond).

Gold ETFs

The taxation of gold mutual funds and gold ETFs at the time of redemption is same as selling gold jewellery.” If the time period between the date of investment and date of redemption is less than three years, then capital gains will be classified as shortterm, added to the person’s gross income, and taxed accordingly. On the other hand, if the time period exceeds three years, then these gains will be treated as long-term and taxed at 20 per cent plus cess with indexation benefit.

Sovereign Gold Bond (SGB)

The government of India lately introduced Sovereign Gold Bond Schemes to offer investors another way to own gold. Hence, it belongs to the debt fund category. It not only brought down the demand for real gold, but could also track import-export of the same. There is a transparency about this product as it comes under the purview of RBI. People who see gold more as an investment than an accessory (ornament), can opt for this. So, they need not waste money on making charges. Nor do they have to find ways (like hiring a bank locker) to store it safely. SGBs are government securities and hence safe. Their value is denominated in multiples of gold grams. This is why, it is a substitute for investing in physical gold.

Taxation of returns from SGBs is different. SGBs earn an interest of 2.5 per cent per annum. Interest earned from these bonds will be taxable under the head Income from other sources and taxed at the rates applicable to your income. The maturity amount that you will receive after 8 years is linked to the gold prices prevailing at that time in the market. In the case of SGBs if any capital gains arise at the time of maturity, then those will be exempted from tax. However, as an investor, you have an option to exit from the scheme post the expiry of lock-in period after five years.

If you exit from the scheme after five years, any capital gains arising from such a sale will be taxed as long-term capital gains at 20 per
cent with indexation. However, TDS provisions will not be applicable at the time of maturity or sale of the bonds.

Digital gold

Digital gold is the latest way to accumulate gold. Many mobile wallets such as Paytm, Mobikwik, and PhonePe have tied up with MMTCPAMP (MMTCPAMP is a joint venture between Switzerland based bullion brand, PAMP SA, and MMTC Ltd, a Government of India Undertaking) or SafeGold to sell gold, starting from a minimum value of Re 1, to its customers.

Buying and selling of gold is easy on these platforms as gold bought is kept in digital form. The taxation of digital gold is also the same
as that of physical gold where the classification of capital gains, if any, will be dependent on the holding period.


Contact us

Please reach out to me without hesitation with any tax, business or accounting question, and to schedule a consultation.

Income Tax Laws are complex. It is very easy to make mistakes that can incur penalties. Do you have a Tax, Accounting or Business Question? Call Us – Mumbai CA – 9082514106.

Is your CA ignoring your Phone Calls and Emails? Call Me Immediately – 9082514106. Call us to request a consultation before March 31 2019 so that I can advise you on how to save taxes. You can ask me any question related to Tax Planning.

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