By Col. Rakesh Goyal (Retd)
For many cultures, Diwali is more than just a celebration of lights — it is also a traditional time to purchase gold. Beyond its cultural significance, gold is often considered a safe investment. But the glittering world of gold investments has its own set of tax ramifications.
Physical Gold
Gold Jewellery:
Buying gold jewellery is a treasured custom, but keep in mind that you are also paying for craftsmanship when you purchase it. A 3per cent Goods and Services Tax (GST) is also applied to the purchase.
Gold Coins/Bars:
Choosing gold bars or coins is a simpler way to invest. In comparison to gold jewellery, the making charges are comparatively lower, and the GST is also 3 3per cent.
Tax Consideration for Physical Gold:
Short-Term Capital Gain (STCG): Profits are taxed according to individual slab rates and are classified as STCG if they are sold within three years.
Long-Term Capital Gain (LTCG): There is a 20.8 per cent tax (20 per cent + 4 per cent cess) on sales made after three years, with benefits for indexation to take inflation into account.
Gold ETFs (Exchange-Traded Funds):
Gold ETFs are financial products that are traded on stock exchanges and track the price of gold.
Tax Implications for Gold ETFs:
If sold within three years, STCG is applicable, and the buyer’s slab rate will be applied to the taxes.
LTCG is subject to a 20.8 per cent tax rate and benefits from purchase cost indexation, which helps to offset inflation.
Gold Sovereign Bonds:
With tax advantages, the Sovereign Gold Bond (SGB) program offers a substitute for actual gold.
Tax Consideration for SGBs:
Interest is taxable when it is earned (about 2 per cent per year).
Capital gains are not subject to capital gains tax when they mature; however, if they are sold before then, they are.
Gold Mutual Funds:
Like gold ETFs, gold mutual funds share tax implications and diversify investments across different gold-related assets.
Taxation for Gold Mutual Funds:
Physical gold and gold ETFs are taxed similarly under STCG and LTCG.
Digital Gold:
Digital platforms and wallets facilitate the acquisition of digital gold, which is a secure digital representation of physical gold.
Tax Implications for Digital Gold:
The tax implications are the same as with actual gold.
It is important to grasp the tax nuances before you start your Diwali gold investment journey. Every option has a unique tax history, whether you go for the digital world, the government-backed SGBs, the convenience of ETFs, the appeal of jewelry, or the diversification of mutual funds. With the right information, you can make decisions that are both financially and culturally astute, extending the life of your gold investment well beyond the holiday season.
The writer is a certified financial planner and founder at Lets Invest Wisely.
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