Investing in Gold to Save on Taxes

The majority of the world’s population once used gold as money. Even if gold and currencies have drifted apart, it is still regarded as one of the finest assets today. An investor does not necessarily have to invest in actual gold due to the abundance of schemes available. Today’s investors are drawn to paper gold assets ETFs, gold futures, gold savings accounts or gold bonds, etc. Some may simply want to know “where can I buy gold bars?” However, when selling gold for a profit, the profit is subject to general consumption tax and income tax as necessary. The taxation of various gold investment strategies is as follows:

Gold Taxes

Coins, jewelry, cookies, and decorations are a few of the common physical gold products. These might be found in households as presents or heirlooms. Selling physical gold as an individual entails paying a 20 percent tax rate as well as a 4 percent long-term capital gains cess. When you sell gold within three years of buying it, it is considered short-term, but gold sold beyond three years is long-term.

The income tax bracket applies to the taxation of short-term capital gains. Long-term capital gains, on the other hand, are subject to a 20 percent tax rate plus any applicable surcharge. Additionally, they must pay a 4 percent cess with indexation advantages. If the individual does not engage in the business of buying and selling gold, the capital gains are taken into account. Gold sales revenue is taxed appropriately in these firms since it is regarded as company revenue.

ETFs

ETFs that track gold are traded on the stock market. A gold ETF unit is equivalent to one gram of actual gold. Taxes on the gain realized through the sale of a gold ETF are the same as those incurred from the selling of actual gold. Long-term capital gains after three years of holding are subject to a 20 percent tax with indexation advantages, but short-term capital gains prior to the three-year holding period are combined with your income and taxed at the current slab rate. As a result, just 4 percent of the tax will be due if your gold’s value rises by 12 percent annually and inflation soars to 8 percent over that time.

Gold Fund Taxes

The so-called Fund of Funds (FoF), commonly known as the gold savings funds, invest in gold reserves on both local and international markets, either directly or indirectly. The investor is not required to open a Demat account to invest in gold funds. The taxation of gold funds in India is quite similar to the taxation of gold jewelry.

Gold Sovereign Bond Tax

The Reserve Bank of India (RBI) issues Sovereign Gold Bonds (SGB) on behalf of the Indian government as part of the Gold Monetization plan. For individuals and Hindu Undivided Families (HUF), the maximum subscription limit for these bonds is 4 kg; for trusts and other similar entities, the maximum subscription limit is 20 kg every fiscal year (April to March). As per the IT Act of 1961, interest in SGBs is taxed. The maturity amount’s capital gain is entirely free from taxation. However, capital gains tax is due if the money is redeemed before it reaches maturity.

Gold Monetization Scheme Tax

The Indian government launched the Gold Monetization Scheme in 2015 with the aim of protecting the gold held by Indian families and generating interest in the unused gold in order to reduce the country’s gold imports by reducing local demand. To promote the deposit of unused gold in the GMS, the government provides tax incentives. Since there is no transfer of gold involved, Deposit Certificates are not regarded as capital assets under this plan, hence tax is not applicable. In addition, Section 10(15) of the Income Tax Act exempts capital gains from both wealth tax and income tax.

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