Taxation Of Gold And Gold Products
Posted on September 30 2020
The profit on the sale of your gold is taxable under the head of Capital Gains but if you are a dealer in the gold and the jewellery in which the case will become taxable under the head of Profits and gains of business or profession. The tax duty and exemptions from the payment of tax which is available depends on your holding period. Either the gold sold can be purchased by you or received by the way of a gift or legacy. The computation process will depend on the mode of such gain.
Taxation of gold purchased
The profits on sale of gold can be either short term or long term depending on the period for which gold was held. If the gold is held for more than 36 months, then it is considered to be profit on the sale which is treated as long term or else it is considered to be short term. The short term capital gains is treated like any other income which is added to your regular income and is taxed depending on the slab rate which is applicable to you. The long term capital gains are taxed at the rate of 20% and the applicable surcharge and education cess, after taking the advantage of appreciating the your purchase price by using the cost inflation index for the year of purchase and for year of sale. The long term capital gain is measured by reducing such indexed cost from the net selling price performed. If the profits are of long term in nature then you can claim exemption on such indexed long term gains by investing the amount of such capital gains in a residential house under the section 54. Alternatively you can claim the exemption by investing such gains in capital gains in the bonds of Rural Electrification Corporation (REC) or National Highway Authority of India under the section 54EC.
Taxation on sale of gold received by inheritance or gift
In respect of gold which has been received as gift, the same will become taxable at the time or receipt in case the value of all the gifts received by you during the year crosses Rs. 50,000/- in a year. Gifts up to Rs. 50,000/- in accumulated in a year are fully exempt. While arriving at whether a particular gift must be included, the gifts received from the close relatives and those received at the time of marriage are excluded without any monetary limit. Please note any asset received as legacy either under a will or under the law of succession applicable to you is fully exempt.
Capital gain tax liability is triggered at the time of sale of gold which is received as legacy or gift. While measuring the holding period of such gold the period from the date when it was held by the prior owner who had actually paid for it is considered and the same is treated as the long term if the combined holding period is more than 36 months. For the cost of acquisition, the amount paid by the prior owner who had paid for it is taken. For example, in case you have inherited the gold jewellery from your mother which in turn was inherited by her mother. If your grandmother had purchased it for Rs 50,000, then the amount paid by your grandmother will be considered as the cost of gain for calculation of taxable capital gains. Therefore, in case the jewellery was inherited by you or purchased by your grandmother before 1st of April, 1981 then you have the opportunity to consider the fair market value of such jewellery on 1st of April, 1981 instead of the cost of gain, which will be qualified for indexation as well. In case the jewellery is inherited by you after 1st of April, 1981 then you will have to take Rs. 50,000 as the cost of gain and the advantage of indexation will be available from the year in which you inherited it as per the strict legal reading of the provisions of law. Therefore, there are numerous decisions of few high courts which includes Mumbai, Delhi and Gujarat, where the courts have held that in the respect of inherited property or received as gift, the taxpayer will not only be designated to substitute the cost paid by any of the prior owners in case the asset is attained after the 1st of April, 1981, but also the taxpayer will be designated to get the advantage of indexation from the year in which that prior owner had attained the property.
Taxation of Gold Exchange Traded Fund (ETF)
Units of gold ETFs are treated as the debt funds and are taxed accordingly. According to the holding period, tax rate and exemption are available which is similar to that of gold discussed above. The holding period for ETF to qualify as the long term is more than 36 months and the tax rate applicable will be at the rate of 20%. The same tax saving avenues is available as those under the sections 54 and 54EC for long term capital gains on gold ETFs.
Taxation under gold monetisation scheme
The deposit certificate issued for gold deposited under the Gold Monetisation Scheme 2015 are not treated as the capital asset for the purpose of capital gains taxation under the income tax law so any profits made on the redemption/ maturity of such deposits are fully exempt from taxation. Else the interest earned on such deposit certificates is also fully exempt.
The interest on the sovereign gold bonds will be taxable in your hands but the capital gains on such bonds will be fully exempt on the maturity. Therefore, the profits made on the sale of such bonds before the redemption date will be taxable depending on the holding period and the exemptions will also be available if the capital gains are the long term in nature and the indexed capital gains are invested either in a residential house or in specific bonds.
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