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.
Following are the ways in which different forms of gold are taxed:
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.
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 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.
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.
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.
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.
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.
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%.
No, gold received as gift from you mother is not taxable.