Gold investment explained: How are different forms of yellow metal taxed?

The taxation of the gold investments depends on the period of holding by a taxpayer, say experts.

Investment in physical form is taxable like any other capital asset.

“If gold is held for more than 3 years, it is taxable as Long Term Capital Gain (LTCG) at 20 percent (exclusive of education cess and surcharge) and Short Term Capital gain is taxable at normal tax slab applicable to the investor,” explains Gopal Bohra, partner, NA Shah Associates.

Indexation benefit is available while computing long term capital gain.

Gold ETFs/gold MFs are also taxable like physical gold.

"Investors, meanwhile, don’t take loss on GST as mutual funds offset it," says Prof Arvind Sahay , Chairperson, India Gold Policy Centre (IGPC), IIM Ahmedabad.

SGBs, on the other hand, earn interest at 2.5 percent on initial investment and have a maturity period of 8 years with an option to exit from the fifth year onwards.

“The interest earned is taxed as income from other sources,” explains Archit Gupta, Founder, and CEO, ClearTax.

In case the bonds are held to maturity, the capital gains are tax-exempt. However, capital gains are payable on the transfer of SGB like transfer of physical gold or ETF or Gold MF.

“The bonds are traded on exchanges in demat form and redeemable after the fifth year. When sold before maturity, the gains are long-term capital gains and taxable at 20 percent (plus education cess and surcharge). The purchase price can be indexed using the cost inflation index,” adds Gupta.

Considering tax benefit (if held till redemption), Bohra says SGB may be preferred against other options of investing in gold.

“There is no risk of physical handling with SGBs and they have fixed interest income,” he adds.

The income arising out of derivative contracts is charged as ‘Business Income’. Any justifiable expenses can be claimed and books of accounts need to be maintained.

"The investor can opt for presumptive tax scheme under section 44AD of the Income Tax Act provided the turnover in that year does not exceed Rs 2 crore," explains Sahay.

The turnover is calculated by adding all the positive and negative differences (i.e. profit and loss on each transaction).

"A tax of 6 percent is payable on such turnover. In this case, the investors are not required to maintain any books of accounts," he adds.