Everyone loves gold for the value it brings. Additionally, the sheen of the yellow metal has been the reason for so many people buying it on religious occasions. This explains why many people put a part of their earnings into jewellery, coins and ingots every year. Alternatively, some pay for digital gold through mobile wallets. There is another way of investing in gold by parking money in paper gold forms including gold exchange-traded funds (ETFs), gold mutual funds and Sovereign Gold Bonds (SGBs).
However, keeping gold in physical form can be a cumbersome affair, thus, hinting at the need to invest in paper or digital gold. Other than safety concerns, the primary reason for investing in gold through the web can be attributed to convenience. However, not many realize that they benefit on the taxation front too. This is because the taxation rules are not the same for different modes of parking your money in gold.
Tax on gold ETFs and gold mutual funds
Investments in physical gold attract the same level of tax as gold ETFs and gold mutual funds. The earnings from selling physical gold after holding it for 36 months are classified under long-term capital gains (LTCG). The money from the sale of physical gold is taxed at 20.8 per cent, inclusive of cess, with the indexation benefit.
Taxation of Sovereign Gold Bonds (SGBs)
The money earned from the redemption of SGBs will invite a different set of taxation rules. Those holding SGBs earn an annual interest of 2.5 per cent every year, which is then added to the taxable income and then taxed as per the given rates in the applicable income tax slab. The maturity period of SGBs is eight years, though the government allows SGB investors to redeem their investments prematurely within three to five years of the purchase. Those looking to exit their SGB investments early can sell online in the secondary markets, provided that the SGBs are held in demat form. Alternatively, the investors can approach the concerned banks or agents 30 days before the coupon payment date.
The gains from the redemption of SGBs between three and eight years are classified as long-term capital gains. Just like physical gold or digital gold, these SGBs are also taxed at 20.8 per cent including cess with the indexation benefit. Gold returns over the past decade can be best described as average, thus, prompting many to sell SGBs within three years of purchase. This they can do over the stock exchange. The earnings from the sale of SGBs are subject to tax depending on the applicable income tax slab.
When held till maturity, the earnings from the sale of SGBs are devoid of any tax liability.