Buying gold this Diwali? Know investment types and tax rules

As the festive season of Dhanteras and Diwali begins, enthusiasm for purchasing gold is at its peak. Traditionally considered an auspicious investment during this time, gold stands as the most sought-after asset. Given the past fluctuations in gold prices, individuals considering purchasing gold might explore various investment avenues with differing tax implications. Understanding these rules is crucial before making a decision.

Diverse Gold Investment Options

Digital Gold:
Investing in digital gold through numerous apps and banks is gaining popularity. With an online investment starting at just Rs 1, this method requires no concerns about storage.

Physical Gold:
Among the choices, physical gold in the form of jewellery, coins, or bars remains a traditional preference. However, considerations include storage, making charges, and GST.

Paper Gold:
Investing in mutual funds, sovereign gold bonds, gold ETFs, or gold exchange-traded funds falls under this category.

Tax Rules on Various Gold Investment Types

Digital Gold:
Investing in digital gold for less than 36 months is not subject to direct tax. However, retaining it beyond this period invokes long-term capital gains tax at a rate of 20 per cent, along with surcharge and a 4 per cent tax.

Physical Gold:
Both Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) taxes apply. Selling gold before 36 months includes its return as part of your income, taxed according to your total tax liability. Holding and selling gold beyond this duration incurs a 20 per cent tax with surcharge and a 4 per cent cess. Additionally, GST applies when purchasing physical gold.

Tax on Paper Gold:
Tax regulations for mutual funds and gold ETFs align with those for physical gold. However, sovereign gold bonds operate under different rules.

Interest earned on gold bonds falls under 'Income from Other Sources,' taxed as per the respective slab. Returns after eight years of bond investment are tax-free. Exiting prematurely incurs different tax rates on the returns. With a lock-in period of 5 years, selling the bond after this duration but before maturity attracts long-term capital gains tax.

Understanding the tax implications of each gold investment option is crucial for individuals during this festive season.