You can own gold in different forms such as physical form like jewellery, gold bars or in electronic form like gold saving funds, gold ETF (exchange traded funds ) and under the Gold Monetisation Scheme, 2015. However, profits on the sale of these different products are taxed differently. Let us understand.
Tax on physical gold, gold ETF and gold mutual funds units
Your investments in gold products is, generally, treated as capital asset and any profit on sale of such products is taxed under the head “Capital Gains”. However for dealers in gold and gold products, the profits are taxed as business income under the head “Profits and Gains of Business of Profession”. The taxation of capital gains depends on the period for which you held your investments in gold. For gold products held for more than 36 months, the profits on sale are taxed as long term at flat 20.80 per cent. In case the same are held for less than 36 months, the profits are taxed as short term and clubbed with your other income and taxed like your regular income.
In case gold jewellery is received by you as a gift, the same is fully exempt in case the aggregate value of all the gifts, whether in cash or in kind, does not exceed Rs 50,000 in a year. However, once the value of all the gifts taken together including the gold jewellery exceeds Rs 50,000, the entire value of gift becomes taxable in your hand during the year in which the gift was received.
Please note that in case gifts are received from your close relative like your parents, siblings etc. are fully tax exempt in your hand at the time of receipt. Even gifts received at your marriage are fully tax-free. Gold received from anyone under a Will or under law of succession is also fully exempt. Though the gifts received may be exempt but the profits on sale of these gold assets become fully taxable in your hand. For computing profit on sale of such asset, the cost will be taken as the value at which any of the previous owners had acquired it for consideration. The holding period for capital gains of such gold is computed with reference to the period from the date when it was bought by any of the previous owner. For example, for gold jewellery gifted to you by your mother who had received it at the time of her marriage from your grandfather who had purchased it for Rs 1 lakh, the amount paid by your grandad shall be taken as your cost of acquisition for you at the time of sale. In case the jewellery was inherited by your grandfather or purchased by him before April 1, 2001, you have the option to consider the fair market value of such jewellery as on April 1, 2001 as the cost of acquisition of such jewellery on which you will be entitled to take the benefit of indexation thereafter. In case the jewellery is receive by you after April 1, 2001, though you can take Rs. 1 Lakh as cost of acquisition but the indexation benefit will be available from the year in which you received such jewellery if you go by the strict reading of the law. However, few of high courts have allowed the taxpayers to take the benefit of indexation from the date on which the previous owner had purchased it for a consideration.
Investments in gold saving funds as well as gold ETFs are treated the same way as regular god and therefore the holding period, tax rate and exemption available are also identical to that of physical gold as discussed in the preceding para.
Taxation aspect gold deposit certificates and gold bonds under gold monetisation scheme
The deposit certificate issued under the Gold Monetisation Scheme 2015 are not treated as capital asset for income tax purposes and thus any profit made on such certificate are fully tax free on redemption/ maturity of such deposits. Moreover the interest on gold deposit certificates is also tax free.
However the interest received by you on sovereign gold bonds, another product under Gold Monetisation Scheme, is fully taxable in your hands but any profits made on such bonds are fully tax free on maturity. Please note that the profits made on such bonds is tax-free only at the time of maturity so any profits made on sale of these bonds before its maturity are fully taxable as long term capital gains or short term capital gains depending on depending on the holding period.
Tax exemption available for taxable long term capital gains
For taxable long term capital gains on sale of gold products, you can avail tax exemptions under section 54 F by buying or constructing a residential house by investing the net sale consideration.
This discussion surely will help the reader fully understand the taxation aspect of various gold products.
The author is tax and investment expert and can be reached on firstname.lastname@example.org