Gold can be owned in different forms like gold bars, gold jewellery gold coins, etc, as well as in electronic form like gold Exchange Traded Funds (ETFs), units of gold saving funds, sovereign gold bonds and deposits under gold monetisation schemes. Taxation of all the gold products are subject to different provisions. Let us discuss the provisions.
Taxation of gold, gold jewellery and gold ETFs
Profits on gold and gold jewellery purchased by yourself and sold become taxable under “capital gains” head as these are generally treated as capital assets. In case you are a dealer in gold, profits are taxed as business income. If the gold is held for more than 36 months, profits are treated as long term and taxed at flat 20 %. Else they are taxed as short term with your other income at slab rate.
The gold, including gold jewellery received as gift, becomes fully taxable at the time of receipt, in case aggregate value of all the gifts received during a year exceeds Rs 50,000. In case the value of the gifts gifts received is less than Rs 50,000, they are fully exempt. However, the value of gifts received from your close relatives as well as those received at the time of marriage are fully exempt. Close relatives include spouse, parents, parents of your spouse, siblings, siblings of your spouse, uncle, aunts and grand parents. Likewise, value of gold and gold jewellery received under a will or as inheritance is fully exempt at the time of such receipt.
However, when gold received under the above specified circumstances is sold, capital gains tax liability gets triggered. The holding period for capital gains of such gold is taken from the date when it was held by the previous owner who had actually paid for it. The amount for which it was purchased by the previous owner is taken as your cost of acquisition.
For example, gold jewellery you receive from your mother, which in turn was inherited by her from her mother. If grandmother had purchased it for Rs 1 lakh, then Rs 1 lakh shall be considered your cost of acquisition.
For jewellery that was inherited by you and purchased by your grandmother before April 1, 2001, you have the option to take fair market value of such jewellery as on April 1, 2001, as your cost of acquisition. You will be able to take the benefit of indexation on such fair market value from April 1,2001. In case the jewellery is inherited by you after April 1, 2001, you will have to take the purchase price of your grandmother as your cost of acquisition. However, if you go by the strict language of the law the indexation benefit will be available from the year in which you became owner of the jewellery, that is, the year in which you inherited it.
Some high courts, however, have tried to correct this anomaly and have held that taxpayer will be entitled to get the benefit of indexation from the original year in which the asset was purchased in such cases. This is more beneficial for the taxpayer. Units of gold ETFs and gold saving schemes are treated like regular gold and the holding period, tax rate and exemption available are similar to that of gold.
Taxation of deposit certificates and gold bonds under gold monetisation scheme:
The deposit certificate issued under Gold Monetisation Scheme 2015 are not treated as capital asset for the purpose of capital gains taxation. So profits made on redemption/maturity of such deposits are fully exempt from taxation. Even the interest received on such deposit certificates is also fullyexempt from income tax.
The interest on sovereign gold bonds is taxable in your hands, but the capital gains on such bonds are fully exempt on maturity. However, if the bonds are transferred before maturity, the profits made on sale of these bonds become fully taxable, as long term or short term depending on the holding period.
Tax exemption for long-term capital gains
In case of long-term capital gains on any of the above assets, you are entitled to claim exemptions under section 54 F, by investing the net sale consideration in a residential house under section 54F. Though till March 31, 2018 you had the option of availing exemption under Section 54 EC by investing such gains bonds of specified financial institutions. From April 1, 2018 the exemption under Section 54 EC can only be claimed for long-term capital gains arising from land and building only.
KNOW THE IMPACT
- Short-term capital gains on gold purchased by individual is as per income tax slab rate
- Long-term gains are taxed at 20%
- Gold inherited is exempt at the time of receipt but taxed when sold
- Interest on sovereign gold bonds is taxable, while capital gains are fully exempt on maturity but fully taxable if sold before maturity
The writer is a tax and investment expert
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