Gold has almost always been a popular investment choice in India, especially during Dhanteras and Diwali, the festival of lights. This is due to its perceived value as a store of wealth and its auspicious connotations. If you are considering investing in gold this Diwali, there are several options to consider, each with its own tax implications.
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1. Actual Gold
Actual physical gold is the most traditional form of gold investment. It can be purchased in the form of bars, coins, or jewellery. Physical gold, in India, is subject to capital gains tax. Short-term capital gains, defined as gains from the sale of gold held for less than 36 months, are taxed at the investor's income tax rate. Long-term capital gains, defined as gains from the sale of gold held for 36 months or more, are taxed at a flat rate of 20.8% plus the indexation benefit.
2. Gold exchange-traded funds (ETFs)
Gold ETFs are an easy way to invest in gold without risking theft or loss, or having to store physical gold. Gold ETFs track the gold prices and are traded on stock exchanges. Gold ETFs are taxed similarly to physical gold. Short-term capital gains from ETFs are taxed at the investor's income tax rate. However, the long-term capital gains on ETFs are taxed at 20% plus cess post indexation.
3. Sovereign Gold Bonds (SGBs)
Sovereign Gold Bonds are government-issued bonds that are denominated in gold. SGBs offer a fixed interest rate (2.50%) and are exempt from capital gains tax if held until maturity. However, the interest earned on SGBs is taxable as income.
4. Digital Gold
Digital gold is a relatively new form of gold investment. It is a digital representation of gold that is stored in a secure vault. Digital gold is taxed similarly to physical gold. Short-term capital gains are taxed at an individual's income tax rate. Whereas, long-term capital gains on digital gold are taxed at a flat rate of 20.8%.
5. Gold Mutual Funds
Gold mutual funds themselves invest in a basket of gold-related securities, such as gold ETFs and SGBs. Gold mutual funds are taxed similarly to other mutual funds.
Tax Considerations
When choosing a gold investment, it is important to consider the tax implications. Physical gold, gold ETFs, and digital gold are all subject to capital gains tax. SGBs are exempt from capital gains tax if held until maturity, but the interest earned is taxable as income. Gold mutual funds are taxed similarly to other mutual funds.
