Investing in Gold ETF? Know how you are taxed and how you can claim them

Gold ETFs which are open-ended mutual funds are promising, flexible, easily available and offer tax benefits. They are linked with fluctuation in the cost of gold price and unlike physical gold which comes with many charges, one gold ETF values equal to 1 gram of gold.  The ETF gives both gold investment and stock trading benefits. The value of Gold ETF rises as price of gold rises. They also come with low risk. Talking about why investors should opt for Gold ETF, Archit Gupta, Founder & CEO of ClearTax said, “Unlike physical gold, you don’t have  to pay any making charges for Gold ETFs. Gold ETFs also offer investors high liquidity as compared to physical gold. Purchase and resale of Gold ETFs are very easy as compared to the physical gold. Moreover, these funds are placed in your demat account which  makes the trading easy and seamless.”

Gold ETF units are taxed like debt funds. The units are subjected to both long-term or short-term capital gains tax depending on their holding period. If the units are sold after 36 months of holding and a profit is earned, then you will be taxed @ 20% with indexation benefits.

“Additionally, if you sell the ETFs units before 36 months and at a profit, then the gains will be added to the person's gross income and taxed according to applicable slab rates,” said Gupta. 

Apart from this, interest earned from units will  be taxable under the head “Income from other sources” and taxed at the rates applicable to your total income. However, Gupta highlights that, tax on capital gains earned on sale can be saved by investing under section 54F and section 54EC.

According to Income Tax Act, under section 54EC tax claims can be made for any long term capital gains arising from land or building or both invested in long-term specified asset (bond redeemable after 5 years) (maximum investment in a financial year is Rs. 50 lakhs) issued by National Highways Authority of India; or by the Rural Electrification Corporation Limited (subject to certain conditions and limits). This one is available for any assessee.

Meanwhile, the act specifies that under section 54F, claims can be made on net consideration on transfer of long-term capital asset other than residential house invested in residential house (subject to certain conditions and limits). However, this one is only available to individual and Hindu undivided family (HUF).

Hence, if you are claiming your gains on Gold ETF remember to claim it in long term and be able to enjoy the tax benefits.