Diwali is already here with the gold markets being illuminated like never before. The sky has been the limit for gold prices this year, luring both the wise and the rookies of the investment world to grab the yellow metal’s flashing promise of high returns. Yet just following the returns trail isn’t enough, taxes are like a dark cloud over your gold shine!
So before you festival-flaunt your portfolio with more gold, let us be your tax guide to various gold investments to keep the glowing of your gains as bright as your Diwali lights.
We should start from the most well-known and classic form of gold - physical - whether it is jewellery, coins, or bars. Capital gains are the first thing to come to mind when you sell gold at a higher price. A day and night difference or 24 hours and 24 months?! Your gold can be interpreted in two main ways here:
Own the gold for a maximum period of 24 months: Any proceeds will be regarded as Short-Term Capital Gains (STCG) which will be taxed correspondingly as per the slab of your income tax.
Own the gold for beyond 24 months: The profits are now termed as Long-Term Capital Gains (LTCG), and the holder is eligible to pay an absolute rate of 12.5% irrespective of the income bracket scenario.
It indicates the tax system of holdings and strategies will affect the amount of money left after tax.
Just like in the money market where new inventions constantly appear to hamper the old structures, the rules regarding digital gold remain the same even if one chooses digital gold through a fintech app. The gold that you keep in your vault means a tangible one, while the gold that is just a figure on your mobile is virtual. Still, the way they are taxed is by considering them as physical gold.
If you sell within 24 months: The gains will be short-term capital gains and the taxes will be paid accord to the slab rate you belong to.
If you sell after 24 months: The gains will be considered long-term capital gains and you will be liable to pay 12.5% of the selling price regardless of your income.
Would you describe digital gold as a mere convenience? If so, then why treat your investment and exit planning as differently compared to investments in traditional forms so as to get the most out of it?
Gold Exchange Traded Funds (ETFs) and gold mutual funds are governed by rules that are somewhat different:
If you sell units within 12 months: STCG, are taxed by slab rate.
Hold for more than 12 months: LTCG, are taxed uniformly at 12.5%.
The reduction in the holding period for long-term gains from 24 to 12 months can be particularly appealing to those investors who want to maintain their liquidity but still enjoy the favorable tax treatment.
SGBs (Sovereign Gold Bonds) present the gold market with a different story. If they are sold before their maturity period, the profits (short or long depending on the holding period) will be taxed the same way as for any other gold investments. However, there will be no tax on the earnings if the holder keeps the bond till maturity, thus becoming an attractive figure for patient investors.
The festival that brings together prosperity and light is going to be bright - you can also be the reason for such brightness but only if you follow the rules of tax planning and understand its implications. It can be jewelry, digital gold, ETFs, or SGBs, the only thing that matters is how well you tie the path of the investment journey with the correct tax strategy so as to get more from your money this Diwali.
Do you think that these gold tax tips can come in handy during the festive season? Then drop a comment, point out what you thought of it and also don't forget to like, share and follow for more practical finance advices!
