Union Budget 2023: Conversion of Physical Gold to Electronic Gold Receipt Not to Attract Capital Gains Tax

17 Feb
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The Union Budget 2023 has proposed a new move to promote electronic gold by allowing the conversion of physical gold into electronic gold receipts (EGRs) without attracting capital gains tax. This move is expected to encourage more people to invest in gold in its electronic form, a safer and more convenient way of holding gold.

But if you need clarification about where to sell gold coins after the Union Budget 2023 announcement, you may get your answer after reading this article. Here we will demystify the purpose of this move, the tax implications of EGRs, and the impact of the budget announcement. Without further ado, let's get started!

Purpose of the Move to Promote Electronic Gold

The purpose of the move to promote electronic gold is to encourage more people to invest in gold in its electronic form. EGRs are issued by banks against the gold deposits made by various customers. This move is also expected to increase transparency in the gold market and curb the circulation of black money.

Tax Implications of EGRs

Transforming physical gold into electronic gold receipts (EGRs) will not attract capital gains tax, according to the Union Budget 2023. As part of the Union Budget 2023, Finance Minister Nirmala Sitharaman suggested that the cost of gold should be considered as the acquisition cost of Electronic Gold Receipts (EGRs) for tax calculation purposes. In addition, the holding period for capital gains tax will be extended to include the period for which the individual held gold before its conversion into EGRs.

This proposal implies that individuals who convert physical gold into EGRs will not be taxed on any gains in the value of gold at the time of conversion. That's because the acquisition cost will be considered the same as the original physical gold.

Conversion from Gold to EGRs

The conversion process from physical gold to electronic gold receipts (EGRs) is straightforward. To convert physical gold into EGRs, customers can deposit their gold with a bank and receive an EGR representing the same amount of gold deposited.

Once the customer holds an EGR, they can choose to sell it for cash or redeem it for physical gold at any time. Moreover, the conversion process is expected to attract something other than capital gains tax, further incentivising customers to invest in EGRs.

Market Participants

The introduction of Electronic Gold Receipts (EGRs) in the gold market is expected to attract a wide range of market participants. The market participants for electronic gold receipts (EGRs) include individuals, banks, and gold traders. Gold traders can buy and sell EGRs in the market, providing liquidity to the market and facilitating price discovery.

They can serve as a new investment option for institutional investors, such as mutual funds and exchange-traded funds (ETFs). These investors can purchase EGRs in bulk and hold them as part of their investment portfolio, providing diversification benefits and a hedge against market volatility.

Impact of the Budget Announcement

To promote electronic gold and increase transparency in the gold market, the Union Budget 2023 has proposed a new policy that allows for the conversion of physical gold into Electronic Gold Receipts (EGRs) without incurring any capital gains tax.

This announcement is expected to significantly impact the gold market by encouraging more people to invest in gold in its electronic form. But old gold jewellery buyers in Delhi and other cities may see a decline in demand for physical gold as more people opt for electronic gold.

Finance Minister Nirmala Sitharaman explained that the conversion of physical gold to EGRs, by a SEBI-registered Vault Manager will be excluded from the purview of transfer for capital gains. Additionally, the cost of acquisition of the EGR will be considered the cost of gold in the hands of the person in whose name the EGR is issued.

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With this move, the government hopes to increase accountability in the gold market, benefiting investors and the economy. The exemption of capital gains tax on converting physical gold to EGRs will make EGRs a more tax-efficient investment option for investors. As a result, investors can enjoy the potential benefits of investing in gold without worrying about the tax implications.

People wondering where to sell gold near me can also benefit from this move by converting their physical gold into electronic gold receipts and selling them in the market. They can easily trade or sell their gold holdings without physically handling the metal, which can be cumbersome and expensive. As EGRs are stored electronically, they are less susceptible to theft and damage.

Bottom Line

Union Budget 2023's proposal to allow the conversion of physical gold into electronic gold receipts (EGRs) is a significant move to promote electronic gold in the market. The move is also expected to increase transparency in the gold market and remove the black money. With the conversion of physical gold to EGRs not attracting capital gains tax, individuals can benefit from the security of electronic gold while also avoiding tax liabilities.