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Income Tax on Gold in India

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Maharshi Shah

Income Tax
Tax Benefits
Tax on Gold
Last updated on July 24th, 2021

One can receive gold in several forms; in physical forms such as jewelry and coins; Or digital form through mobile wallets; Or in paper form by investing in gold mutual funds, gold exchange-traded funds (ETFs), and sovereign gold bonds (SGB). When one buys or sells gold it is important to know how it taxed on the hands of the taxpayers. This article will give an idea of how the tax on gold is computed in India.

Different Forms of gold and its Tax Treatment

Following are the ways in which different forms of gold are taxed:

Physical Gold

Physical Gold is the most common way of buying gold i.e. in the form of jewelry, gold bars and/or coins. The income arising from this form of gold falls under capital gains and the calculation of tax depends on the period of holding the gold jewelry/coins.

STCG: If the holding period (difference between buying and selling) of this form of gold is less than three years (36 months) then it will be classified as short-term capital gains. Such capital gains will be added to your income and taxed at the applicable interest rates.

LTCG: If the period of holding (difference between buying and selling) this form of gold is more than three years (36 months), it will be long-term capital gains. These capital gains will attract a 20% tax rate along with a surcharge if applicable and a 4% cess.

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Paper Gold

Paper Gold is another way of buying gold i.e. in the form of investing in gold mutual funds, gold exchange-traded funds (ETF) and/or sovereign gold bonds (SGB). This form is treated the same way physical gold is treated in terms of taxation.

STCG: If the difference between the date of investment and the date of redemption is less than three years, it is STCG. These gains will be added to your income and taxed at applicable tax rates.

LTCG: If the period of holding this form of gold is more than three years, it will be classified as LTCG. These gains will be taxed at 20% in addition to cess along with indexation benefits.

Individuals investing in SGB will earn an interest of 2.5% per annum and this earing will be classified as income from other sources. The taxation on returns from SGB is different from that of paper gold. The returns one acquires after 8 years of investment in SGB are tax-free but if one decides to withdraw pre-maturely then the returns are taxed at different tax rates. In addition to this, SGB has a 5 year lock-in period, any capital gains arising from the sale of these bonds after 5 years will be LTCG. This LTCG will be taxed at 20% with indexation including cess.

Digital Gold

Digital Gold is the latest form of owning gold in India. Various mobile wallets like Paytm, Google Pay and PhonePe have tied up with MMTC-PAMP or SafeGold to sell gold, starting from a minimum value of INR 1.

The tax treatment of digital gold is similar to paper and physical gold where the holding period decides the applicability of tax.

STCG: If the holding period is less than three years, returns are not taxed directly. They are added to the gross income and taxed at applicable tax rates.

LTCG: If the holding period is more than three years then a 20% tax on returns is to be paid, along with a surcharge and 4% cess. 

How to Save Taxes on LTCG from Investment in Gold?

The Income Tax Department provides provisions that can help in reducing the tax burden of paying 20% on LTCG from gold investments. Section 54F of the Income Tax Act provides tax exemption on the entire long-term earnings from the gold investment if the amount is reinvested into a residential property. Under Section 54EC, if the returns are invested in eligible bonds, then one can claim a tax exemption.

What is the Tax on Gold Received as Gift or Inheritance? 

In India, gifting gold or receiving gold in inheritance is considered a tradition. Therefore, apart from knowing the tax treatment of investing in gold, it is important to know the tax on gold received as a gift or in inheritance.

Tax on Gold received as Gift

If one receives gold as a gift from relatives i.e. parents, siblings or children then one does not have to pay tax on that. If one receives such a gift from someone who is not a close relative then it is considered income from another source. It is important to note that such a gift will only be taxable if its value exceeds INR 50,000.

In addition to this, if one sells the gold received as a gift then it will attract taxes as per the gains i.e. LTCG or STCG just like physical gold.

Tax on Gold received in Inheritance

If one inherits gold from their bold relative then one does not have to pay tax on that. If the gold is inherited by someone other than a blood relative then one has to pay the tax if the value of the gold is more than INR 50,000.

Here also, if one sells the inherited gold, LTCG or STCG will apply. In order to determine the holding period, one needs to consider the date of acquisition of the original owner of the items.

FAQs

How is gold ETF taxed in India?

If you are purchasing gold ETF and selling it at a profit within 36 months then it will be taxed as STCG and if sold after three years it will be considered LTCG and taxed at 20%.

I received a gold jewelry from my mother will that be taxable?

No, gold received as gift from you mother is not taxable.

Got Questions? Ask Away!

  1. Hey @sushil_verma

    There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.

  2. Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.

    For eg,

    • Medical allowance is exempt up to INR 15,000 on a reimbursement basis.
    • Children education allowance is exempt up to Rs. 200 per child per month up to a maximum of two children.
    • Conveyance allowance is exempt up to a maximum of Rs. 1600 per month.

    Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.

  3. The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).

    Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).

    As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.

  4. Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback. :slight_smile:

  5. Hey @shindeonkar95

    In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.

    However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.

    Hope, it helps!

  6. Hello,

    Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?

    There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?

    I couldn’t find anything on this. Any help is appreciated.

  7. Hello @Veejayy,

    Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.

    Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.

    These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!

    Also, interest earned on these bonds will be taxable.

    Hope this helps!

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