Lucknow Investment：How Gold Is Taxed In India

Gold is among the most popular metals for ornamental use and investment, given the trust Indians have exhibited in it for centuries. The country imported gold worth $45.54 billion in the financial year 2023-24, up 33.34% compared to last year. This solid consumption begs the question— “How much am I paying in taxes when buying or selling gold?”.

Here’s a comprehensive guide on how gold is taxed in India.

Import Duty: 15% (BCD: 10% + AIDC: 5%)

GST: 3%

TDS: 1% on gold value above INR 1 lakh

The government imposes import duty— a combination of customs duty and agriculture infrastructure development cess (AIDC)— on the import of gold into the country. Imports fulfill a considerable portion of India’s gold demand, as India doesn’t have as many gold mines to match the massive demand for the commodity. As most of the gold is imported, it attracts Import duty.

The custom duty on gold bars is from 12.5% to 10%. After adding GST, the final tax on the physical gold will be 10% + 3% flat GST.

Read more: How Much Gold is Allowed From Dubai to India

The Government of India collects the AIDC for the nation’s development. 5% AIDC applies to gold imports. Once the cess is added along with the import duty, plus GST and AIDC, the total tax on gold will be 18%.Lucknow Investment

GST applies to jewelers and merchants selling gold. However, this cost is passed on to the consumerJaipur Wealth Management. Indian government levies 3% GST on purchase of physical gold.

For example, upon buying INR 1 lakh of gold, 3% GST will be charged on INR 1,15,000, which is its value after adding the import duty and cess.

Making charges do not constitute tax, but a charge is applicable for designing the gold into coins or jewelry, and hence, the making charges attract additional GST. Although the GST cost on this charge might not be presented separately, it is included in the making charges column in the final bill when you purchase gold.

The GST on making charges is 5%, and the making charges jewelers apply vary from 8% to 35% of the gold’s value. Let’s consider a minimum amount of 8% as making charges for the above example of importing INR 1 lakh gold. Upon applying charges of 8%, which is INR 9,200 on INR 1,15,000, and GST on making charges of 5% of INR 460, you will pay INR 1,28,110.

If one buys physical gold worth more than INR 1 lakh, they will be charged TDS at 1%. This amount can be used to reduce one’s annual tax liability.

STCG: As per the individual’s income slab

LTCG: 20% with indexation benefit

GST on the exchange of Jewelry: Nil on the exchange of gold in the same quantity

Short-term capital gain applies if the gold is sold within three years of purchase. This gain is taxable according to the person’s earnings and preferred income tax slab. Thus, if the income falls under the 30% slab, the gain amount (sale price minus purchase cost) will be taxed at 30%.

Long-term capital gains tax (LTCG) is applicable when gold is sold after three years of purchase. LTCG on gold gains is 20% after applying the indexation benefit. This can be waived if the entire net proceeds from the sale are used to buy government tax benefit bonds, such as the National Highway Authority of India bonds and REC bonds, among others.

Another way to save taxes is if the net proceeds are used to buy a house either within one year before the sale of gold, within two years of the sale, or if the net proceeds are used to build a house within three years of sale of the underlying gold.

This is a tricky scenario, and one must be conscious while transacting in an exchange, as the person can be deceived. When we exchange gold jewelry, the transaction doesn’t attract GST if you exchange the same quantity of gold. For example, if one goes to a jeweler with 100 gms of jewelry and exchanges it for 100 gms of jewelry, no GST is applicable on the gold.

The person would only have to pay the difference in the making charges and the applicable taxes. Thus, we should be careful of the taxes applied to the bill and ensure that the exchange amount is not taxed.

Taxes on digital gold vary more or less on the type of gold investment instrument type, and the major ones include:

SGBs are bonds issued by the RBI on behalf of the Government of India. One bond represents 1 gram of gold. Since they are backed by the Government, they are considered very safe.

STCG: As per the individual’s income slab

LTCG: 20% with indexation benefit

GST: Not applicable

TDS: Not applicable on SGB

Tax on interest amount: Applicable

STCG: If one sells their SGBs within three years of buying, STCG will be applicable. The gains will be added to the person’s income and taxed according to the appropriate tax slab.

LTCG: This is applicable if the bonds are sold at a gain after three years of purchase at 20% with indexation benefits and 10% if indexation benefits are not availed. No LTCG is applicable if the bond is held till maturity; that means LTCG is exempt. The maturity period for an SGB is eight years.

As these bonds are traded on exchanges, one can buy a bond of his choice. Hence, if one wants to invest in gold for three to eight years and doesn’t want to pay tax, SGB is the preferred option.

LTCG applies to individuals and not HUFs and Trusts.

GST: This does not apply to SGBs as they are treated as securities.

Making charges and GST on it: As SGBs are digital assets, no making charges are applicable, and hence, no GST on making.

GST applies only to the securities transaction tax (STT) and brokerage amount. On a comparative note, these charges are a maximum of 0.75% of the value of purchases. Hence, GST liability is minimal on SGBs.

TDS: This does not apply to SGBs.Hyderabad Stocks

Tax on interest amount: Income tax applies to the interest earned on SGBsHyderabad Investment. SGBs offer a 2.5% per annum interest. This interest is added to the income and taxed according to the applicable tax slab. Although this is an additional tax, on a comparative note, SGBs give interest, which is not the case in physical gold. Hence, this tax should not be considered a burden.

Gold ETFs are mutual funds traded on stock exchanges in units. The prices of gold ETFs represent the value of the underlying gold. Various mutual fund houses issue them.

STCG: As per the individual’s income slab

LTCG: 20% with indexation benefit

GST: Levied on brokerage, STT, expense ratio

TDS: Not applicable on gold ETF

STCG and LTCG: STCG applies to Gold ETFs similar to SGBs, according to the individual’s tax slab. LTCG on Gold ETF is also similar, 20% with indexation benefit and 10% if indexation benefit isn’t available.

GST: GST applies only to the securities transaction tax (STT) and brokerage. It is also relevant to the fund’s expense ratio. The maximum expense ratio for Gold ETFs in India is 1%, and 18% GST is charged on this expense ratio.

TDS: This does not apply to Gold ETFs.

Gold ETF is a preferred investment instrument for investors seeking tax benefits and earning interest. They can be bought for a minimum of INR 50. SGBs, on the other hand, require investors to buy at least one unit of SGB, equivalent to one gram of gold.

Hyderabad Wealth Management