Everything To Know About Various Gold Forms & Taxes
- 22 Sep
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Most of us possess some gold in tangible form, which we might have inherited from our family or received as a gift. If you are experiencing a liquidity issue and contemplating selling gold as values reach all-time highs, you should consider the tax implications. If you are reluctant to sell gold, India is fourth in global gold recycling and has processed 75 tonnes in 2021.
Now speaking about selling gold without taxes, let's understand a few basic things. There isn't a tax if you have inherited gold or received gold as a present from blood relations. However, if you sell it and make a profit, you must pay capital gain taxes.
Let's examine how the capital gains tax is computed when gold is inherited or gifted.
The Process To Tax Physical Gold
You may retain gold in various physical forms, including ornaments, coins, and bars. We all know that gold is a capital asset; hence any capital gains you generate must be taxed. If you've owned the yellow metal for less than 36 months, you must pay short-term capital gains (STCG) tax, in which the whole gain is applied to your income and taxed according to your tax bracket. Yet, Long-term capital gains (LTCG) on gold held for over thirty-six months are taxable at 20% after indexation.
So, this is all about if you possess gold in physical form. Let's have a look at some other cases.
Tax On Gold Received As Gift Or Inheritance
If you get gold or even gold assets as a gift, it will be taxed at the time of receipt under the category "Income from other sources" - if the total value of all gifts received throughout the year, comprising gold, surpasses Rs 50,000. However, several exemptions apply to movable gifts (including gold). So, let's have a look at them.
1.Annual total value of gifts is below Rs. 50,000
2.Gifts received from relatives included in the Income-tax Act:
3.Spouse of an individual
4.Any lineal descendant or ascendant of the spouse of an individual
5.Sister or brother of the spouse of an individual
6.Brother or sister of either of the parents of an individual
7.Any lineal descendant or ascendant of an individual
8.Brother or sister of an individual
9.Gifts received during the wedding of the person from friends and individuals
10.Any inheritance acquired according to a will or the relevant succession laws.
If the gain meets the criteria for long-term capital gains, 20% of the gain will be taxed. The tax rate will be equivalent to the assessee's customary rate, which is determined by his overall income if the gain qualifies as short-term capital gains.
Tax On The Sale Of Gold Received As Gift Or Inheritance
You must pay capital gains tax upon the sale of gold valuables that you received as gifts or inherited. In this situation, you must pay capital gains tax on the entire selling profits of gold assets since the acquisition cost is assumed to be zero.
Also Read :- Gold Prices Nowadays: Why is Gold So Costly
The application of short-term or long-term capital gains tax will depend on the total holding period of the gold commodity, which comprises the time it was retained by the former owner who bought it and the time you retained it before its sale. If the cumulative holding time exceeds three years, the gain will be categorized as long-term capital gains; if under three years, the gain will be short-term.
Further, if the gain counts as long-term capital gains, the tax rate would be 20%. Similarly, if the gain counts as short-term capital gains, the tax rate will equate to the assessee's usual rate, as indicated by his overall income.
Capital Gains Tax on the Sale of Gold Exchange Traded Funds (gold ETFs) and Gold Mutual Funds (Paper gold)
Gold ETFs and Gold Funds have recognized investments in gold. Gold exchange-traded funds refer to themselves as securities that follow the price of gold and find themselves trading on stock markets. Gains from selling gold ETFs or gold mutual funds come under taxation in the same manner as real gold. At the moment of redemption, you have to pay tax for gold mutual funds and gold ETFs similarly to gold jewellery.
Suppose the interval between the investment date and redemption date is shorter than three years. In that case, the capital gains will be considered short-term, included in the individual's gross income, and then taxed accordingly. If the time frame extends three years, however, these profits will be considered long-term and are taxable at 20% plus cess with indexation advantage.
Also Read :- Why Gold Price is Increasing - 24karat We Buy Gold
Tax on Digital Gold
Regarding capital gains taxes, people treat digital gold as identical to actual gold. The most current investing strategy that has lately gained prominence is digital gold. Digital gold assets kept for less than 36 months are exempt from taxation. Long-term capital gains are subject to a 20% tax on the entire amount, plus a 3% surcharge and a 4% cess, including indexation advantages.
What do you need to know before investing in digital gold?
Buying gold was never simpler. The development of digital gold has made it possible to purchase this coveted precious metal with only a few mouse clicks. As the name indicates, "digital gold" is an online method that enables you to electronically retain gold without needing a safe or bank vault. Digital gold's appeal seems enhanced because one may purchase in tiny quantities without needing secure storage at home. Further, there is no requirement for a Demat and trading account with a broker.
In India, three firms provide and keep gold in vaults:
2.MMTC-PAMP India Digital
3.Gold India, under its SafeGold brand
Investors who purchase digital gold can exchange it for real gold and receive it at their residences. However, customers are responsible for the shipping costs since they are not part of gold's buying price. Additionally, investors must incur the making charges when turning digital gold into physical objects like gold bars or coins. Therefore, knowing this is essential so that the investor is not surprised later.
How to sell gold without paying taxes: Is it possible?
Section 54F of the IT Act of 1961 permits you to claim an exemption on long-term capital gains resulting from the sale of gold holdings. So, this section provides an income tax exemption on capital gains on the sale of assets other than a primary residence, such as stocks, gold, bonds, etc. When selling gold and putting the sale proceeds to use to buy or build a home, Section 54F does not apply to the capital gains you make.
Yet, to be eligible for these tax exemptions,
1.You must acquire a new residential property one year before selling the capital asset. OR
2.You must acquire residential property two years after selling the capital asset. OR
3.Within three years of the sale date of the capital asset, you must build a residential property
Assume you cannot spend the whole selling proceeds to purchase/build a new residential home before the ITR filing deadline. In such instances, the profits from the sale of gold go deposited into a Capital Gains Account at a public sector bank. So, you may use the amount to acquire or develop a new residential property within the required timeframes.