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Income Tax Returns Filing Rules for Various Types of Gold Investments
Gold has for long been a favourite amoung investors in India. The precious metal has sentimental value in the country for its cultural value, as an asset for future financial security and as an investment.
If you have made investments in physical gold, gold ETF (exchange-traded fund), gold monetisation scheme or sovereign gold bonds, you should be aware of your tax liability and provisions that come with it.
Here is a brief of how the profits you have made from gold in different forms will be treated under the in income tax act.
Physical Gold
Gold in the form of bars, biscuits, coins, jewellery, etc is physical gold. You should know that it is considered as a capital asset for the computation of tax purposes. Unless you are engaged in the business of making and designing gold jewellery, (in which case it will be taxable as business income), the income earned from physical gold will be a capital gain.
- Short-term capital asset: if held for less than 36 months and taxed at normal rates.
- Long-term capital asset: if held for 36 months or more and taxed at 20 percent.
Note that if the gold was received as a gift (in marriage or from relatives) or inherited by you or given to you under the irrevocable trust, it is not considered as a capital gain for tax purposes and is tax-free in the hands of the recipient and the giver.
However, the receiver will be taxed on the subsequent sale of the asset gained. For this purpose, the period of ownership of the gold and the cost of acquisition in the hands of the previous holder will also be considered.
You should also note that gold worth more than Rs 50,000 (fair market value) is received without consideration or inadequate consideration will be taken under the head 'income from other sources.'
Gold ETF
When the investor redeems the units of gold ETFs, the cash equivalent of the market value received is treated as debt funds and is taxed like physical gold.
Gold Monetisation Scheme
The ‘Gold Monetisation Scheme-2015' was introduced to monetize unused gold deposits of Indian citizens. The scheme allows individuals to open a gold savings account wherein the person deposits gold, with a permission to mold it and the 'quantity' of gold is credited to the depositor's account.
The deposit certificates from the scheme are not considered 'capital assets', and therefore profits will not be treated as capital gain. Additionally, interest earned on this deposit is exempt from tax under section 10(15).
Sovereign Gold Bond
With the introduction of gold bonds, the government wanted to channelize the invested funds of the citizens to the markets and reduce the demand for physical gold, which is a significant item on India's import list. The price of this bond is linked to that of the markets. The interest gained from these gold bonds are taxable but the redemption value is excluded as it is defined as transfer under the IT act.
