Whether for festive reasons or a general investment, gold should be your top contender. This investment option has been popular for the last few years, given the consistent increase in its price. Gold investment not only offers assured return, but you can also diversify your portfolio with this secure option.
Nevertheless, gold investments also demand you to understand various taxations on your purchases. Therefore, keep reading to understand this subject matter at length.
Various Types of Gold Investment and Their Taxation
Not many are aware, but gold investment options go beyond your traditional idea. You can choose from multiple means for gold investment. Additionally, each of these forms has varying tax implications.
- Physical Gold & Its Taxation
The traditional gold investment is the physical gold you can purchase physically as coins, jewellery, biscuits, or ornaments. The buyer is responsible for the safe storage of this popular investment. As per India’s Income Tax Act, sellers of physical gold must pay 20% tax with a 4% cess on LTCG (long-term capital gains).
Hence, gold investment comprises a 20.8% variable tax. But if you are dealing with STCG (short-term capital gains), the same rate may not be applicable. If your held gold is 36 or more months old, it will fall under LTCG.
- Paper Gold & Its Taxation
Paper gold is not obtainable like physical gold, but you can own it on paper. Your SGBs (sovereign gold bonds), mutual funds, and ETFs (exchange-traded funds) fall under paper gold. Your capital gain is income obtained from selling your MF or ETF units. India’s gold tax rules consider you responsible for paying a tax of 20.8% on LTCG gold sales. If you hold paper gold for no more than three years, your income slap will decide the tax rate.
- Digital Gold & Its Taxation
With everything going digital, your gold investments do not fall behind. The only difference between digital gold is your insurer does you the favour of storing your gold. Additionally, RBI, SEBI, and other government entities do not possess the authority to regulate digital gold investment.
If buying digital gold is in your investment plan, your gains will attract a 20.8% taxation like paper and physical gold investments per the tax rules.
However, you must know that their tax eligibility is the same as the tax rate for F&O trading.
- Gold Derivatives & Its Taxation
Specific derivative contracts have gold as an underlying asset. The commodities market allows you to purchase gold derivatives. However, you must know that their tax eligibility is the same as the tax rate for F&O trading.
These gold derivatives allow you to produce non-speculative income. Hence, you can make an expense claim against how much you made from selling your gold derivatives and creating a profit and loss account to determine the net income.
Gold investment is a popular option for several individuals and offers you multiple forms like digital, physical, paper, and derivatives for investment. However, it does come with certain risks, and its price fluctuates based on economic factors. Since your gold investment also follows an income tax application, you must consider every aspect before purchasing.
