In the case of physical gold, holding gold jewellery up to 500 gm, 250 gm, and 100 gm per married woman, single woman and man respectively, is not taxable as per the Taxation Laws (Second Amendment) Bill. However, when selling it for gains, the profit becomes taxable as applicable under General Consumption Tax and Income Tax. Additionally, holding physical gold entails other costs such as making charges, storage or locker fees, etc. that are incurred at the time of investment and holding period.
But are there ways to invest in gold, with reduced tax liabilities?
- Gold ETFs: Similar to company stocks that are traded on a stock exchange, gold ETFs are units that are equivalent to the market value of gold and can be traded on commodity exchanges. This form of gold investment attracts a 20% Capital Gains Tax with indexation benefit when sold after three years. For instance, if the value of your gold ETF goes up by 12% each year while inflation goes up 8% for the same period, the tax will be applicable only on the remaining 4%.
- Gold Mutual Funds: Funds that are invested across gold ETFs by a professional fund manager, gold mutual funds let you diversify your risk. Just like gold ETFs, Capital Gains Tax with indexation benefit apply when sold after three years. Additionally, when sold before three years, the profit attracts tax liability under the Income Tax Act as per your existing income tax slab.
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- Gold Savings Funds: Also known as Funds of Funds, these are essentially mutual funds that invest in gold ETFs and other short-term funds. You can invest through a Systematic Investment Plan (SIP) with as less as Rs. 1,000, and deposit fixed amounts at regular intervals, even without a demat account. You will get taxation benefits of long term capital gain tax after one year.
- Gold Bonds: This scheme was introduced by the government to give investors returns that are linked to gold prices. Since these are Government of India bonds issued by the Reserve Bank of India, they come with a sovereign guarantee. At maturity, the amount redeemed will be tax free. However, if the amount is redeemed before maturity, capital gains tax will be charged.
So, the next time in gold, think not only of growing your wealth, but saving it too.