Gold can be held in various forms like Jewellery, Coins, Bars, ETF’s Bonds etc. In this article, we’ll explain the levy of gold on each of these forms.
Tax on sale of Gold Jewellery, Coins, Bars etc
The physical gold that you buy from a jeweller which can be in the form of gold coins, bars or jewellery is considered as a Capital Asset. The Tax Rate on sale of a Physical Gold which is a capital asset is levied as follows:-
|Period of Holding (i.e. difference between Buy & Sell Date)||Classification of Asset||Tax Rate|
|Less than 3 years||Short Term Capital Asset||As per Income Tax Slab Rates|
|More than 3 years||Long Term Capital Asset||20%|
It is important to note here that the tax is not levied on the entire sale proceeds but is levied only on the Capital Gains amount.
In case of Short Term Capital Asset,
Short Term Capital Gains = Sale Price – Cost of Acquisition (i.e. Purchase Price)
In case of a Long Term Capital Asset,
Long Term Capital Gains = Sale Price – Indexed Cost of Acquisition (i.e. Indexed Purchase Price)
The price at which you are selling the gold would form the Sale Price. The jewellery can either be inherited or purchased. The purchase price in both the cases would be determined as follows:-
Let’s take some examples to understand it better:
Short Term Capital Gain on sale of purchased Jewellery
For instance, say you have a gold coin of 10 gm which you had bought for say Rs.20000 one year ago and now you want to sell it at Rs. 30000. Then the difference between the cost you paid to buy the gold and the sale price will be your profit i.e. 30000-20000=10000.
This profit shall be taxed as per income tax slab rate since the holding period is 1 year (i.e. less than 3 years)
Long Term Capital Loss on sale of inherited Jewellery
Now let’s take another example. Suppose you have acquired some ancestral gold and you plan on selling it now. If the jewellery was purchased before 2001 then you can take the FMV of the jewellery as on 1.4.2001 as your purchase price or else you can take the actual purchase price.
Suppose your parents had bought it on 1.4.1990 for Rs. 50000 and they gave it to you as a gift on 1.4.2005. The FMV as on 1.4.2001 is 200000. And you’re planning to sell it on 1.7.2017 for Rs. 600000.
So here since the FMV is more than the purchase price, we will take 200000 as the purchase price. Now, this price will be indexed based on the values given in the Act to arrive at its value as in 2017.
The cost inflation index for year 2001 is 100 and the Cost Inflation Index for the year 2017 is 272. (Refer: What is Cost Inflation Index)
With these values we calculate the corresponding price, which shall be, 272/100*200000= 544000. This amount now becomes your cost of acquisition and your sale value is 500000. So the net capital gain will be sale value- purchase price which shall be, 6,00,000-5,44,000= 56,000.
|Date of Purchase||1.4.1990|
|Date of inheritance||1.4.2005|
|Date of sale||1.7.2017|
|FMV as on 1.4.2001||200000|
|Indexed price as on 1.7.2017||272/100*200000= 544000|
|Capital Gain/Loss||Sale Value- Indexed Price
Tax on Sale of Gold Monetization Scheme Bonds
In Gold Monetization Scheme, the government issues bonds to its customers in exchange of physical gold deposit. The bond holder earns interest on these bonds and also gets the benefits of capital appreciation in the value of gold.
The interest earned on these bonds is exempt from the levy of Tax. Moreover, the capital appreciation due to increase in the value of gold is also tax exempt.
Tax on sale of Gold Exchange Traded fund
Gold ETFs are units representing physical gold, which may be in paper or dematerialized form. These units are traded on the stock exchange and are taxed in the same way as gold jewellery (explained above).
Tax on sale of Gold Sovereign Bonds
Gold Sovereign Bonds are issued by the Government of India that derives its value from the physical gold prices. It carries a specific rate on interest that is paid half-yearly and has tenure of 8 years. These bonds have the option of pre-mature redemption after 5 years.
You can purchase these bonds at a certain price from various post offices and banks, and redeem it on maturity at the prevalent price of gold on that day. The minimum investment is 2gm and the maximum being 500gm in a single financial year. These are available at issued in denomination of grams.
The interest on these bonds is taxable as per the slab rates. If these bonds are redeemed on maturity – no tax is levied on the capital appreciation. However, in case the bonds are sold before maturity – the entire profit is taxable as Capital Gains.
Summary of Tax on various forms of Gold
|Forms of Gold||What is it?||Taxability on sale of Gold|
|Physical Gold||The actual gold available in the form of jewellery, coins and bars||Short term capital gain tax on a holding period of less than 3 years at normal slab rate and long term capital gain on gold held for more than 3 years is taxed at 20% flat.|
|Gold Monetised Certificate||The certificate issued by the bank on the deposit of actual physical gold||Both interest and capital gain on maturity is exempt. It has been specifically removed from the definition of capital asset.|
|Gold Exchange Traded Fund||Open ended mutual fund scheme that invests in gold bullion of 99.5% purity, which are tradable on the stock exchange||Short term capital gain tax on a holding period of less than 1 year at normal slab rate and long term capital gain on gold held for more than 3 years is taxed at 20% flat.|
|Gold Sovereign Bonds||The gold bonds issued by the Government of India||