The Picture of Gold Investments and Income Tax Rules in India

The Picture of Gold Investments and Income Tax Rules in India

Gold investments are becoming one of the common ways to save on income tax bracket as it also holds a traditional value in Indian’s mind. Investments in gold were previously limited to jewelry purchasing but now with the changing picture, taxpayers are more focused on investing in the gold funds. Gold ETFs and mutual funds are treated equally as the non-equity or debt mutual funds according to the Indian income tax rules.

The Gold ETFs and Mutual Funds comes under the capital gain rules which equals them to the non-equity or debt mutual fund. The capital gains are of two types, short-term and long-term capital gains and both applies to the gold investment funds. The gold bonds that are purchased using the profit made from prior selling made within 3 years affect income tax bracket as short-term capital gain. When the sale is made in over 36 months after completing the purchase, it will be considered as long-term capital gain.  The Income Tax Deductions You Can Avail Before It is Too Late.

The long-term capital gains are applicable only after selling the gold and in that case, the tax rate will depend on the indexation been carried or not. Indexation is the process of adjusting inflation in the market which affects the value of your gain. According to income tax rules, for indexed funds, the tax rate is 20% and for non-indexed funds, it is 10%. Also, a 3% additional tax liability will be imposed in case of after calculating indexed fund returns.

Now let’s see the tax consideration prescribed for the Sovereign Gold Bond which was designed to reduce nation’s reliance on imported gold. According to income tax rules, The gold units are sold in grams and each investor can sell up to 500 gms which is linked to market rate. Gold in this form is prevailing market prices, the initial offering, and rate of return are linked to each other. It comes in 5 years of lock-in period where capital gain taxes and TDS are not imposed on them or on the earned interest. For the Sovereign Gold Bond, standard rules apply which can get you standard deduction prescribed on income tax bracket. Income Tax Return Liabilities Possessed on EPF withdrawals.

Now talking about the Physical gold i.e, jewelry, gold bars and gold coins which are also subjected to taxation in India. The physical gold taxation rules are different from the gold investments made in DEMAT format. While buying gold above INR 5 Lakhs, you have to produce your PAN card. Income tax rules are same for physical gold as same as the long/short term capital gains. Purchasing gold over INR 5 lakhs requires a registered valuer’s certificate. Owning physical gold is liable to taxation according to wealth tax rules which are 1% of the amount exceeding INR 30 lakhs

So in a way, it can be said that investing in gold in paper form is for beneficiary according to income tax rules then buying physical gold.


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