Should you buy GOLD this Akshaya Tritiya ? Answer depends on whom you are asking … most certainly it is “Yes”, if you are asking Indian woman. While it is that way for many decades, as the society is more progressive, educated, a firm tax system, it is this question that is being debated now. What’s the Tax Impact in buying, selling Gold ?
Gold in India is a Capital Asset, while buying Gold one has to pay GST when selling the same to another prospective buyer or a shop, the gain from the sale is taxed from the income tax perspective.
What is the Tax on Gold ?
Before GST came in to picture (before Jul 2017), The tax on Gold was at 1% Service Tax, and 1% VAT, a total of 2% Tax at the time of buying. Post GST the same was increased from 2% to 3%.
The Capital gains arrived from the Sale of Gold is taxed as per the Income Tax Rules. Any capital asset held by a person for a period of more than 36 months immediately preceding the date of its transfer will be treated as long-term capital asset. While there are minor changes to this rule, for Gold, on need to identify whether it is a long term or short term gain.
Long term gains do go through indexation that will reduce your Taxable Income from the gain from the same.
How the Capital Gain on Gold is calculated ?
Capital gain on Gold is calculated as
Capital gain = (full value of consideration received on transfer) – ( cost of acquisition of capital asset + cost of improvement of capital asset + expenditure incurred in connection with transfer of capital asset)
Refer Comprehensive Capital Gains Income Tax Guide
How to avoid or defer paying Tax on Gold ?
There are two Sections in Income Tax Law that can be used avoid or defer tax on capital gains from the sale of Gold.
|54F||Long-term capital gain arising on transfer of any capital asset other than residential house property.||Net sale consideration to be re-invested in purchase or construction of one residential house property in India.|
Using above section, one can either avoid or delay in paying income tax on the proceeds from GOLD.
In addition, you have an opportunity to park your gains from gold in a CGAS scheme account from the select banks to defer paying taxes for up to 3 years. This requires attention from your Tax Consultant like EZTax.in to understand on how.
Alternatives to buying Gold as Coin or Jewelry ?
As Indian Society is moving due to Urbanization, Westernization, Jobs, and other Opportunities, traditional security or interest in holding Gold in its physical form such as Coin form, Jewelry has lost its significance.
There are alternatives in holding Gold as an asset in your portfolio to hedge and/or to treat as a traditional asset class.
1. Gold ETF: is an exchange-traded fund (ETF), is a commodity based ETF where the principal asset is gold. It is similar to any other ETF act like individual stock, and trade on an exchange system in the same manner. The buy event do not give you any physical form of gold metal.
Tax Impact of GOLD ETF: Gold ETFs are subjected to Taxes like any other ETF. Gains will be treated as Short-Term Gain if liquidated within a year. Otherwise would be treated as Long term capital Gains.
2. Gold Fund of Funds: Another means of owning Gold in your Portfolio, gives you an opportunity to invest even in small amounts. Performance would depends on the basket of funds that were part of the Fund.
Tax Impact of Gold Fund of Funds: The Tax treatment would be similar to GOLD ETF.
3. E-Gold: was introduced in 2010 by NSE India to suit Indians who like to invest in gold in electronic form and can be converted in to physical form when they need, which is not the case for GOLD ETF or Gold Fund of Funds.
Tax Impact of E-Gold: is similar to Physical form, one need to hold the units for 3 years to be treated as long term capital gain and the exemptions from Sections 54F can be availed to reduce the tax burden.
One should consider above before investing or buying gold in any form this Akshaya Tritiya. We @ EZTax.in wish you a happy Akshaya Tritiya and have a loads of tax saving along with the joy that comes with.
In case you need expert Consultation on Taxes ? Do not hesitate to call @ +91 7288 900 900 or Visit us
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