Taxation of GOLD

Arjuna (Fictional Character): Krishna, Recently there is lots of ups and down in gold market and its rates. Many other types of precious metal, stones are there but no other can take the place of gold.  Indians are found of Gold; hence let’s explain me about gold and taxation.

Krishna (Fictional Character): Arjuna, in world and particularly in India there is huge turnover of gold. Gold is valuable and precious. Purchasing or having gold serves two purposes, one ornaments of gold are used for wearing and second it is used for investments. The value of gold is ever increasing. As the value of gold is high, taxing system also wanted there pie of gold in the ambit of taxation.

Arjuna: How much GST will have to be paid on the transaction of gold or gold ornaments?

Krishna: Arjuna, remember Goods and Service Tax (GST) will be charged at the time of buying at 3 per cent on the value of gold plus making charges.

Arjuna: If gold or gold ornaments, etc. gifted to other then what is its tax treatment?

Krishna: As per Hindu Law, women have right of all the gold ornaments, valuables and other gifts received on the occasion of marriage from her parents side. It is called as “StriDhan.” Gold and ornaments received on the occasion of marriage is not taxable. Further, valuables and gifts received on any other occasion from the relatives should be kept on record as regards when and how they are received i.e. list should be prepared. Don’t forget income tax department may enquire about when and how these valuables were received. If these records are kept properly, then income tax will not be required to be paid. Further gifts of more than Rs. 50,000 received from other than relatives are taxable.

Arjuna: When taxpayer will have to give information of gold?

Krishna: Arjuna, If in Income Tax Return the income shown is more than Rs. 50 Lakh then information of gold and ornaments is required to be given by an Individual.

Arjuna: Whether PAN card is mandatory at the time of buying of gold coins or gold jewellery?

Krishna: Arjuna, copy of PAN card need to show or submit to the jeweller only if you are purchasing gold coins or gold jewellery in cash of Rs. 2,00,000 or more. PAN card is not required if the payment is been made via cheque or credit/debit card and even if the purchased gold price is more than Rs. 2,00,000.

Arjuna: Krishna, in today’s world handling gold is very risky. Therefore for investment option of “Gold ETF” or sovereign gold bonds (SGBs) are used. What is this “ETF” and how taxes are charged on it?

Krishna: Arjuna, “ETF” means “Exchange Traded Funds.” Purchase sale of ETF is carried out through stock market. In this option there is no risk of handling gold. Generally if gold held as assets, is purchased are sold within three years then short term capital gain on the profit is levied at normal rates applicable to individuals and if sold after three years then long term capital gain is levied on the profits @ 20%. However taxation of Gold ETF is same as selling gold jewellery. It means if Gold ETF is sold after 36 months from the date of purchase then Long term capital gain tax is levied @ 20% on the profits and if it is sold within 36 months then short term capital gain tax on the profits will be levied at normal slab rates.

Further, taxation of returns from SGBs is different. SGBs earn an interest of 2.5 per cent per annum. Interest earned from these bonds will be taxable under the head Income from other sources and taxed at the rates applicable to your income. The maturity amount that you will receive after 8 years is linked to the gold prices prevailing at that time in the market. In the case of SGBs if any capital gains arise at the time of maturity, then those will be exempted from tax. However, as an investor, you have an option to exit from the scheme post the expiry of lock-in period after five years. If you exit from the scheme after five years, any capital gains arising from such a sale will be taxed as long-term capital gains at 20 per cent with indexation. However, TDS provisions will not be applicable at the time of maturity or sale of the bonds

Arjuna: What is digital gold and how its tax under income tax?

Krishna: Arjuna, many banks and brokerage companies, in partnership with MMTC, offer digital gold through their apps. Investors can invest very small amount of money in gold through this route. Income tax on digital form of gold is similar to what is applicable to the physical form of gold or gold ETFs.

Arjuna: What one should learn from this taxation of Gold?

Krishna: Arjuna, in life Gold is a good investment but the one who invests in knowledge is real rich. As value of pure gold is more same is the case of pure knowledge. But today such pure things are rare. As originality of gold is known after heating it similarly, identity of knowledgeable person is understood in trouble only. So create wealth with gold but also create wealth of knowledge. Indian love gold, hence knowledge of its taxation is also must. Once upon a time, India was called as ‘SONE ki Chidiya”, its true if we look at the gold stored in Indian Temples, Palaces, etc.

Republished with Amendments