Do you know what is the tax on gold profits? Or how different forms of gold are taxed? Or more specifically, how capital gains on selling gold are taxed?
If you invest in gold or already have it, then it is important to know how gold is taxed at the time of selling, i.e. What is Gold Income Tax in India (2020)?
This article talks about the tax on gold investments and how much tax you pay on capital gains. We will also understand how to calculate capital gains on the sale of gold in India (2020)? And I am sure many would also be interested in knowing about the income tax on gold jewellery. We will address that too when talking about tax on selling gold in India.
As per the current income tax laws (2020-2021), the taxation on gold broadly depends on how long you have held the gold.
So the capital gains arising from the sale of gold can either be short-term or long-term depending on the time period for which the gold has been held, i.e. between buying and selling. Also, the taxation of capital gains on selling gold is dependent on the form of gold.
By the way, if you have doubt about is gold a capital asset? The answer is that gold is considered a capital asset by the tax authorities in India. As a result, any capital gains on gold comes under taxation net too.
So let’s see how much tax you pay on capital gains from the sale of gold in various forms.
But before we move forward, it’s important to understand that the taxes on the sale of gold are levied only on the capital gain but not on the total (full) sale proceeds.
Income Tax on Selling Physical Gold (Capital Gains 2020)
That is, taxes on physical gold in India.
Capital gains from the sale of physical goal is taxed based on whether it is short term or long term capital gains. If the gold is sold within 3 years (36 months) from date of purchase, then it is considered as short-term. But if it is sold after 3 years, it is considered a long term.
The short-term capital gains on the sale of gold is taxed at the income tax rates applicable to your respective income slabs. The long-term capital gains are taxed at 20% (plus cess) with indexation benefits (gains calculated after adjusting the purchase price of gold for inflation based on CII index).
That is your tax on gold profits if you wish to call that.
Income Tax on selling gold ETFs / MFs (Capital Gains 2020)
Gold ETFs and Gold Funds are considered as gold investments. So here is how the government puts a tax on your gold investments in gold ETF and gold funds.
Capital gains from the sale of gold ETFs or gold mutual funds are taxed similarly to that of physical gold.
So the short-term capital gains on the sale of gold ETFs and Gold funds are taxed at the income tax rates applicable to your respective income slabs. The long-term capital gains are taxed at 20% (plus cess) with indexation benefits (gains calculated after adjusting the purchase price of gold for inflation based on CII index).
By the way, there is no such gold investment tax benefit in India. Nor do you get income tax exemption on gold purchase. Sorry ladies!
Income Tax on selling Sovereign Gold Bonds (SGB): (Capital Gains 2020)
Sovereign Gold Bonds (SGBs) are issued by RBI on behalf of Government of India.
Basically, these are government securities denominated in grams of gold and act as substitutes for holding actual physical gold. This is the only form of gold where you also get some regular interest (2.5% per annum paid semi-annually) in addition to the potential for capital gains later. The interest on gold bonds is credited semi-annually to the bank account of the investor.
These SGBs have a maturity period of 8 years, with an exit option from 5th year onwards. But sovereign gold bonds can also be traded on stock exchanges within a fortnight of issuance, offering an early exit option for investors.
The taxation of Sovereign Gold Bond 2020-21 hence has various aspects So let see tax on selling gold bonds in India:
- Taxation of Interest from Sovereign Gold Bonds – The interest income is taxable as per the tax rate applicable for your income slabs. The interest income is added to your total income under the head of “Income from Other Sources” and taxed as per tax slab rate accordingly.
- Taxation on Redemption of Sovereign Gold Bonds – You can redeem SGBs at maturity or after completion of 5th The capital gains generated at redemption after 5th and up to 8th year is exempted from all taxes. So no capital gain taxes if you hold Gold Bonds till maturity.
- Taxation on Sale of Sovereign Gold Bonds in Secondary Market / Stock Exchange – SGBs are allowed to be sold (traded) on the stock exchange even before maturity. So any gains or losses arising from the sale of SGB will be considered as a capital gain (or loss). But even on selling on exchanges, the time of holding will be considered. So if you sell the Gold bond on exchange within 3 years, then it will be short term capital gains taxed as per your income tax slab. But if you sell the gold bonds after 3 years but before maturity, then it will be long term capital gains and taxed at 20% with indexation. But do note that the TDS is not applicable.
Even gold bonds can be called as proper gold investments (unlike gold jewellery). So that was about gold bond investment taxation in India (2020).
Income Tax on selling Digital Gold (Capital Gains 2020)
Many companies and new startup (in partnership with government-backed firms like MMTC, etc.) have started offering something called Digit Gold.
The taxation of capital gains from the sale of digital gold is similar to that of physical gold / ETF, etc.
Income tax on Sale of Inherited Gold Jewellery in India (2020)
Indians inherit a lot of gold. All the time. That’s part of the culture. So I wanted to touch this aspect separately. I am sure even you have some gold handed to you from family’s previous generations and maybe curious to know about taxes on physical gold in India.
So if you are planning to sell inherited gold, do understand the tax implications and the income tax rules on selling inherited gold.
As of now in India, there is no income tax levied on inheritance of gold. But the subsequent sale of the inherited gold is taxable normally.
Now if the gold was inherited (or purchased by parents) before 1st April 2001, then you can use Fair Market Value (FMV) as on 1st April 2001 instead of actual costs incurred to purchase the asset. The Fair Market Value can then be indexed to determine your cost of acquisition. This helps to get the benefit of indexation. However, if the gold was inherited after 1st April 2001, then the actual cost of purchase will be treated as the cost of the purchase price for you at the time of selling.
So it is important and advisable to maintain proper documentation of inherited gold to have sufficient proof to show that the gold was received under inheritance. More so if the amount of gold holding is large.
So that was about income tax on gold jewellery and tax on selling gold in India.
Now, let’s have a brief look at how to calculate capital gain on sale of gold in general.
Example of Short Term Capital Gains on Selling of Gold in India (2020)
Suppose you purchased gold worth Rs 5 lac on 14th April, 2018 and sold the same for Rs 6.5 lac on 27th January 2020. Now you have earned a profit of Rs 1.5 lac on sale of gold which will be treated as capital gains. And since the holding period here is less than 3 years, the gains will attract Short Term Capital Gains Tax under the Income Tax Act. So you pay tax on these gains as per your income tax slab.
That is the tax on gold profits in general in the short term (less than 3 years).
Example of Long Term Capital Gains on Selling of Gold in India (2020)
Suppose you purchased gold worth Rs 5 lac on 14th April, 2018 and sold the same for Rs 8 lac on 27th January 2022. Now you have earned a profit of Rs 3 lac on sale of gold which will be treated as capital gains. And since the holding period here is more than 3 years, the gains will attract Long Term Capital Gains Tax under the Income Tax Act. Now the Long term capital gain earned from the sale of gold is taxed at 20% (plus cess) and is eligible for the benefit of indexation of the acquisition cost of gold. So the long term capital gain is computed by first adjusting the cost of acquisition for inflation, then reducing that indexed cost from the net selling price realized.
That is the tax on gold profits in general in the long term (more than 3 years).
By the way, if you are confused about finding out the indexed cost of purchase, do read how to use cost of inflation index for capital gain calculations (2020-2021).
So that is how different types of gold are taxed in India (2020) at the time of sale and capital gains on gold sale calculated. As per the latest rules of Gold Income Tax in India 2020-21, the profit on the sale of gold is taxable under the head ‘Capital Gains’ of Income Tax. And the capital gains from the sale of gold depends on whether it is short term or long term and the income tax on capital gains on gold depends on the form of gold.
So if you are planning to invest in gold, it makes sense to understand various options and tax implications of investing in gold and more importantly, how capital gains from gold taxed in India 2020.
I hope you now have a better understanding of tax on selling gold in India and how does the government put a tax on your gold investments.
PS – I am not a tax expert (I am a SEBI RIA offering Fee-Only Investment Advice). This article is based on my general understanding of the taxation angle of gold. From an investment perspective, different people require different allocation to gold as a tactical plan in their investment portfolio.