fjrigjwwe9r3SDArtiMast:ArtiCont
Gold prices breached the ₹40,000 mark per 10gm on 26 August for the first time. The prices have been on the rise since last one year. During this period, the yellow metal outperformed other avenues of investment such as equity mutual funds, real estate and fixed income instruments.
Before you leap into investing in gold, consider other factors such as risk, liquidity and taxability. Also, remember that its tax aspect can affect your net return. Taxability of gold depends on the form in which you buy and the holding period. Here are the details.
Physical gold
If you invest in physical gold such as bars, coins or jewellery, any gains from sale within three years from the date of purchase will be considered as short-term capital gains (STCG); after three years, they will be considered long-term capital gains (LTCG).
STCG is added to your gross total income and taxed at your slab rate, whereas LTCG is taxed at 20.8% (including cess) with indexation benefits. You can claim tax exemption on LTCG under Section 54F of the Income-tax Act, 1961, if you use the funds to buy a residential property. The exemption will be proportional to the amount you invest. You can reinvest the entire amount and not just the gains.
Gold exchange-traded funds (ETFs) invest in physical gold, and gold mutual funds invest in gold ETFs. Both mirror the price movement of physical gold. The taxation and exemption rules for them are the same as for physical gold.
Gold bonds
Sovereign gold bonds (SGB) are certainly a better investment option than physical gold or gold ETFs and MFs. These are issued by the Reserve Bank of India on behalf of the government from time to time. They pay an interest of 2.5% per annum in addition to the increase in the value of gold. Moreover, if you hold the investment till maturity, any capital gains would be exempt from tax.
The bonds mature after eight years, but there are exit options after the fifth year. You can also trade SGBs on stock exchanges within a fortnight of issuance, and exit. In case you exit before maturity, you will get indexation benefit while calculating LTCG. However, interest earned during the holding period will be taxable in your hands.
So factor in taxability to calculate the net returns from gold. Also, keep in mind that most experts suggest that gold should not form more than 5-10% of your total investment portfolio.
9840018033
