Buying precious metals such as gold and silver is considered auspicious during Dusshera and Diwali. While these metals are indeed a symbol of prosperity and wealth, it is essential to be aware of the tax implications associated with such investments. Here are some key tax considerations to keep in mind before deciding to invest in gold and silver this festive season.
Capital gains tax on gold and silver:
Selling precious metals invites long-term capital gains tax (LTCG) when held for more than three years, while short-term capital gains tax (STCG) when one sells gold and/or silver within three years of purchase.
“When you invest in gold or silver and sell them at a profit, you may be liable for capital gains tax. In India, gold and silver investments are categorised as long-term or short-term based on your holding period,” said CA Ruchika Bhagat, MD, Neeraj Bhagat & Co.
Bhagat added that the tax rate varies accordingly, so it is crucial to be aware of these distinctions and their respective tax rates.
Tax on Sovereign Gold Bonds (SGBs):
SGBs are an alternative to physical gold. These bonds offer interest income in addition to the potential for capital appreciation.
As per the tax expert, these bonds do not attract LTGC when held till maturity. Bhagat says that if these are sold on the secondary market before maturity, capital gains tax will be applicable.
Tax on gold jewellery and ornaments:
It is essential to know that gold jewellery is considered a personal asset and is not subject to capital gains tax when sold. However, making a significant purchase may entail paying a Goods and Services Tax (GST) on making charges, which can vary from state to state.
Tax on gold gifts:
Gold received as a gift from blood relatives is not subject to taxation. However, if one receives them from a non-relative, taxes would be applicable.
Also, selling gold received as a gift draws taxes as applicable on physical gold investments, as per STCG and LTCG norms.
Gold ETFs and Mutual Funds:
Gold Exchange-Traded Funds (ETFs) and Gold Mutual Funds are treated as equity mutual funds when tax is applied.
“Short-term gains (if sold within one year) are subject to short-term capital gains tax, whereas long-term gains are taxed at a reduced rate. Ensure you are aware of the specific tax implications of the gold ETF or mutual fund you choose, as tax treatment may vary among different funds,” said Bhagat.