Profits from transfer of gold assets are considered as capital gains and taxed under the head “Capital Gains". Read this article to know about the tax liability on long-term capital gains from the sale of gold.
It has often been seen that when people are in dire need of cash, they look to monetize their gold holdings, particularly ornaments. In recent months, the prices of gold have witnessed an upward trend. This has prompted many to consider selling their old gold jewellery. Now, prior to selling gold, it is important for one to understand the applicable tax implications, which in turn can help in ascertaining the actual profitability. The tax rules on different forms of gold, like sovereign gold bonds, gold ETFs, jewellery, gold coins, gold bars, and gold mutual funds, are subject to the holding period.
Income tax on the sale proceeds from gold comes down to the duration for which it was held. In case gold is sold within three years from the date of its purchase, then it is regarded as short-term gains. On the other hand, if it is sold after three years, it is considered as long-term gains. In this article, we will look at the income tax charged on long-term capit
Tax on LTCG from Sale of Gold
The tax applicable on long-term gains from the sale of physical gold is 20.8% (including cess), with indexation benefits. In other words, the purchase price of gold is adjusted after inflation is factored in. LTCG tax from sale of gold ETFs or gold mutual funds are taxed similar to physical gold.
Capital gains from redemption of sovereign gold bonds are exempted from tax. Indexation benefit is provided to long-term capital gains arising to any entity on transfer of bonds. The tax on digital form of gold is the same as that of physical form of gold, gold mutual funds and gold ETFs.
Tax Exemptions on LTCG from Sale of Gold
Tax exemption on LTCG from the sale of gold assets can be claimed if the gains are reinvested in capital gain bonds listed under Section 54EC of the Income Tax Act, 1961. One needs to reinvest the gains in these bonds within 6 months of the asset’s transfer. The exemption shall be proportionate to the LTCG invested. In case the investment is less than the LTCG realized, the proportionate gains would only be tax-exempt. The maximum sum that can be parked in such bonds per financial year is Rs. 50 lakhs.
Section 54F of Income Tax Act also allows for tax exemptions to be claimed from the sale of gold, if the proceeds are invested in residential property (subject to certain conditions). The section reads “if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45” and “if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45”.
Disclosing Capital Gains in ITR
After an individual has determined what his or her capital gains (or losses) are, the next step would be to mention them in the ITR form. Taxpayers are required to report capital gains in schedule CG of the ITR forms. Those who do not have a taxable income, but have booked LTCG above the basic exemption limit should file their ITR.