There is no doubt that investment in gold has never gone away despite the good performance of other asset classes. Since February, gold has demonstrated a remarkable return of approximately 17 percent. Accordingly, the value of the commodity reached unprecedented levels every day in both domestic and global markets, despite the rise in US government bond yields. Gold futures trading on the Multistock Exchange (MCX) continued its rally on Tuesday, touching a high of Rs 71,150 per 10 grams on April 9, 2024.
In line with this trend, international figures reflected a new record high for the precious metal for seven consecutive sessions; continues to trade around these peaks today. The surge was mainly due to a rise in 10-year Treasury yields – the first since November last year, which was largely due to upbeat market sentiment following China’s central bank’s decision to increase its gold reserves in March.
An analytical retrospective of gold’s returns over the past 20 years reveals a significant growth rate of nearly 1150%. This valuable asset has gradually realized an impressive escalation of 161% over the last decade and a jump of about 123% over the last five-year period. Moreover, within the previous year alone, this valuable commodity has provided a significant yield equal to approximately 17.44%.
So when it comes to investing in gold, there are many ways to do it. Government gold bonds, gold ETFS, gold stocks are some of the popular ways to invest in the yellow metal.
It is imperative to emphasize that the tax policies applied to both digital and physical gold remain fundamentally consistent, with government gold bonds (SGBs) being a notable exception in this regard.
SGBs
The Center introduced the Sovereign Gold Bond (SGB) scheme in November 2015 to offer an alternative investment to physical gold. Over the years, the market has witnessed a significant decline in the demand for physical gold. SGBs are government securities and are considered safe. Their value is denominated in multiples of grams of gold
There is no tax relief on lump sum deposit of SGBs under Section 80C of the Income Tax Act. Interest paid on SGB deposits is also not tax-free. The amount of interest must be declared under “Income from other sources” during tax returns. Income tax will be as per individual income tax. Tax Deducted at Source (TDS) is not applicable on SGBs. However, they are exempt from capital gains tax when held to maturity.
Gold ETFs
Under the new norms, gold ETFs and gold mutual fund units purchased till March 31, 2023 were treated and taxed as physical gold and became long-term capital assets if held for 36 months or more. After March 31, 2023, the units are taxed as short-term capital gains, regardless of how long you hold them. Taxation occurs on sale or repurchase. It should be noted that units are taxed at tax rates.
Physical Gold (Coins and Biscuits)
Under the Income Tax Act, the sale of physical gold is taxed at 20% along with 4% Long Term Capital Gains (LTCG) tax. An additional 8 percent fee is charged when the item is sold three years after purchase. Conversely, if you exit within a period of 3 years after acquisition, the gains are included in your income and subsequently taxed according to your applicable tax bracket.
Compared to traditional jewelry, this option turns out to be more economical due to the exclusion of crafting fees. However, it is pertinent to note that these items require provisions for secure storage; thereby potentially incurring associated costs such as locker fees.
Gold jewelry
Capital gains tax is applied on the sale of jewelery or gold. If an investor has held the gold for more than 3 years, it will be considered long-term and tax @ 20% will be applicable after indexation. For short-term capital gains, the individual interest rate will apply.
