What is Tax on Gold in India at the time of buying and selling? 4th November 2018 is Dhanteras day for all of us. We feel proud and auspicious to buy the gold on this day. However, you must also know the taxation on Gold before jumping into investment.
We can hold the gold in many forms like Physical Gold like bars, coins or ornaments and ETFs and Bonds (Sovereign Gold Bond).
Hence, the tax on Gold in India also changes based on the way you are holding the gold. Let us discuss on by one in detail.
GST Tax on Gold in India while buying
Let us discuss the applicable GST you have to pay while buying the gold in India. There are two taxes one have to incur while buying the gold. The GST on gold and GST on making charges. Let me explain different scenarios to understand the applicable GST.
# If you buy the Gold where the seller does not charge you separately for making charges
Assume that you purchased the gold worth of Rs.1,00,000. However, Jewellery shop owner not billing you separately for gold and making charges. In such a situation, you have to pay 3% GST on the total billed amount (i.e 3% on Rs.1,00,000).
# If you buy the Gold where the seller charge you separately for making charges
Assume that you purchased the gold worth of Rs.1,00,000 and jewellery shop owner billing separately for making charges of Rs.18,000. In that case, you have to pay 3% GST on gold of Rs.1,00,000 and 5% GST on Rs.18,000.
# You sell your gold in Jewellery Shop and buy the new gold
You no need to pay the tax on the amount of jewellery you sold to shop. However, whatever the gold you purchase freshly, the above said rules of GST rate will be applicable.
# You sell your gold in Jewellery Shop but not buy anything
You no need to pay any GST on the amount of jewellery you sold to the shop.
# You own a gold but gets any ornaments made it from Jewellery Shop
Here, you are not buying any gold. However, there is making charges which shop owner charges you to make a new gold ornament. Hence, the applicable GST on such making charges is 18%.
Tax on Gold in India when you sell
You noticed that the applicable GST rate for Gold when you buy it. What will be the tax treatment on gold when you sell it. As I already pointed, the taxation of the gold differs based on the form of gold you are holding. Let us discuss one by one.
Capital Gain Tax on Gold Jewellery, Coins and bars etc in India when you sell
The physical gold like Jewellery, coins or bars etc is considered as a capital asset for taxation purpose. Hence, it is taxed as per the holding period of the gold. Below is how it is taxed.
Do note that the tax is levied only on the gain but not on the total sale proceeds. However, in many cases, the gold may be purchased by you or inherited by your family. Hence, how you calculate this also be important to arrive at the capital gain tax.
The formula to calculate the Capital Gain Tax on Jewellery is as below.
Short Term Capital Gain Tax (STCG)=Sale Price-Purchase Price
Long Term Capital Gain Tax (LTCG)=Sale price-Indexed Cost of Purchase Price.
How to find the purchase price?
You may be aware of selling price but what about the purchase price if you inherited it? In that case, we have to follow the rules as below.
# If Gold Jewellery was inherited
If it was inherited before 1st April 2001, then you have to use Fair Market Value (FMV) as on 1st April 2001 or the cost of purchase of the previous owner.
However, if it was inherited after 1st April 2001, then the cost of purchase of the previous owner is the cost of the purchase price for you.
# If Gold Jewellery was purchased
If it was purchased before 1st April 2001, then you have to use Fair Market Value (FMV) as on 1st April 2001 or the cost of the purchase price.
However, if it was purchased after 1st April 2001, then the actual cost price is to be considered.
How to find Indexed Cost of Purchase?
As you noticed in case of LTCG, to arrive at the capital gain, you have to find the indexed cost of purchase. The formula for the same as below.
Indexed Cost of Acquisition=(Cost of Acquisition/Cost of Inflation Index (CII) for the year in which the asset was first held by the assessee OR FMV for FY 2001-02, whichever is later)* Cost of the Inflation Index (CII) for the year in which the asset was sold or transferred.
You can refer the complete list of Cost of Inflation Index Rate chart in my earlier post “Cost of Inflation Index for FY 2018-19 / AY 2019-20 for Capital Gain“.
Capital Gain Tax on Gold Monetization Scheme Bonds
If you have idle gold in any form, then you can utilize this scheme to earn the tax-free interest on such deposited gold. However, the format will change and they melt the gold once you agree to deposit.
I have already written a detailed post on this scheme bond. Refer the same:-Gold Monetization Scheme-Earn Tax-Free interest from your Gold
The interest earned from the Gold Monetization Scheme Bonds is completely Tax-Free. Also, the capital gain is also tax exempt.
Capital Gain Tax on Gold Exchange Traded Funds (Gold ETF)
It is the way of investing in gold and holding units either in paper form or in Demat form. The underlying asset of such ETFs is Gold only. Hence, the price movement will be based on the gold. The units are traded in the stock exchanges like a stock. Hence, to buy or sell, you must have a Demat account.
The taxation of Gold ETD is same as that of Gold Jewellery which is already explained in the above post.
Capital Gain Tax on Sovereign Gold Bond
These are the Bonds issued by the Government of India from time to time. They carry two advantages. The government will pay you certain fixed interest on your investment also you may get capital gain when you sell it. You can refer my earlier post for the same “Sovereign Gold Bonds Issue FY 2018-19 Series II – Details, Feature & Review“.
The tenure of the bond is 8 years. However, you can redeem the bond after 5 years completion. Also, if you have an emergency need, then you can sell it in the secondary market at any point of time. Hence, based on these situations, the are three aspects of taxation. Let us see one by one.
1) Interest Income-The semi-annual interest income will be taxable income for you. Hence, For someone in the 10%, 20%, or 30% tax bracket, the post-tax return comes to 2.25%, 2% and 1.75% respectively. This income you have to show under the head of “Income from Other Sources” and have to pay the tax accordingly (exactly like your Bank FDs).
2) Redemption of Bond-As I said above, after the 5th year onward you are eligible to redeem it on 6th,7th and 8th year (last year). Let us assume at the time of investment, the bond price is Rs.2,500 and at the time of redemption, the bond price is Rs.3,000. Then you will end up with a profit of Rs.500. Such capital gain arising due to redemption by an individual is exempted from tax.
3) Selling in the secondary market of Stock Exchange-There is one more taxation which may arise. Let us assume you buy today the Sovereign Gold Bonds Issue FY 2018-19 Series II and selling it in stock exchange after a year or so. In such a situation, any profit or loss from such a transaction will be considered as capital gain.
Hence, if these bonds are sold in the secondary market before maturity, then there are two possibilities.
# Before 3 years-If you sell the bonds within three years and if there is any capital gain, such capital gain will be taxed as per your tax slab.
# After 3 years-If you sell the bonds after 3 years but before maturity, then such capital gain will be taxed at 20% with indexation.
There is no concept of TDS. Hence, it is the responsibility of investors to pay the tax as per the rules mentioned above.
Tax on Gold in India – Physical Gold, Gold Monetization Bonds, Gold ETF, and Sovereign Gold Bond
Let me now put it in tabular format of what we discussed above.
Hope this will bring in the clarity of taxation while you buy or sell the Gold in India.