Introduction
Many individuals seek out gold for a variety of purposes, whether it’s to celebrate significant milestones or simply for the pleasure of adorning themselves with beautiful jewelry. Additionally, gold is a popular investment choice due to the absence of limits on the amount an individual can possess. This investment is not limited to jewelry; it encompasses gold coins, gold bars, and other forms as well.
As you contemplate investing in gold, numerous questions might arise. Is gold a secure investment? Do I need to declare my gold investments? What tax-related precautions should I consider? These concerns have gained prominence with the government’s increased focus on monitoring unreported assets and investments. Read on to know more details.
Limits of Holding Gold Jewellery and Ornaments
There is no limit on how much gold jewellery you can keep at home, provided you can explain the source of income that allowed you to buy or invest in case of an Income tax investigation. However, there are also some limits on the amount of unaccounted gold jewellery that can be kept at home without any tax troubles. According to the Central Board of Direct Taxes (CBDT), the limits for holding gold jewellery and ornaments without showing any proof are:
When such gold jewellery and ornaments are seized, the assessee must explain the source of income for making such investments. If the assessee fails to offer an explanation or the reason provided is insufficient, the amount is taxable under section 69B at the rate prescribed in section 115BBE of the Act. The stipulated rate is 60% + a 25% fee. Add a 4% HEC and a 10% penalty on such tax.
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Gold, often referred to as the “king of metals,” has captivated humanity for centuries due to its intrinsic beauty, rarity, and enduring value. While the allure of gold is universal, not all gold is created equal. The various types of gold, each with distinct characteristics and applications, contribute to the rich tapestry of this precious metal.
Physical gold refers to the tangible form of this precious metal, commonly available in coins, bars, or jewelry. Unlike paper or digital representations of wealth, physical gold provides individuals with a concrete and enduring asset that has been valued for its beauty, rarity, and intrinsic worth throughout human history.
One of the distinctive qualities of physical gold is its historical significance. Across civilizations and centuries, gold has symbolized wealth, power, and luxury. It has been used as currency, adornment, and a store of value. Even in the modern era, physical gold maintains its allure, connecting investors to the enduring legacy of this precious metal.
Digital gold refers to a form of investment that allows individuals to own and trade gold in electronic or digital format, eliminating the need for physical possession of the precious metal. This innovative financial instrument leverages technology to provide investors a convenient and accessible way to participate in the gold market.
Individuals can only invest a maximum of 4 kg per year in SGB. The holdings used as collateral by banks and other financial institutions will not be included in the investment ceiling.
No outward costs are associated with purchasing sovereign gold bonds (SGBs), as you are not required to pay GST. An SGB receives interest at 2.5% annually, added to taxable income and assessed according to the applicable slab. After eight years, SGB profits are, however, tax-free.
LTCG applies to mutual funds and gold ETFs when held for more than three years. For investments made for less than three years, the rate is the same (20% plus 4% cess), and the gains are applied to your taxable income and taxed according to your IT slab.
The expenses, minimum and maximum limitations, and tenure times of various gold investment products vary. Therefore, before investing, be sure to exercise due diligence.
If you trade gold (say, bars or coins) for new jewellery, no GST has been imposed again up to the weight of the gold swapped. Just the value of excess weight is subject to GST. However, no GST would be levied on the sale of gold.
Income tax on the sale of gold
Sale of gold jewellery/bullion/Gold ETFs/Gold MFs is taxable under the head ‘Capital gains’ as under; If you sell the gold within three years of purchasing it, the profit is considered a short-term capital gain (STCG). The STCG is applied to your income and taxed according to the Act’s particular slab rates.
If you sell the gold three years after purchasing it, the profit is termed long-term capital gain (LTCG). The LTCG is taxed at 20.8% (20% plus a 4% cess). The purchase cost indexation advantage is offered (to cover inflation cost from the year of purchase to the year of sale)
How to save tax on LTCG arising on the sale of gold?
Section 54F of the Act exempts individuals and Hindu Undivided Families (HUFs) from paying tax on the aforementioned LTCG if the entire sale profits are invested in acquiring residential home property. To qualify for the exemption, the house property must be purchased either one year before or two years after the date of the gold sale, and the building must be finished within three years of the date of the gold sale.
Long-term capital gains tax is applicable when the gold is sold after three years of purchase. LTCG on gold gains is 20% with indexation benefit (Indexation is used to adjust the purchase price of an investment to reflect the effect of inflation on it). This can be waived off if the entire net proceeds from the sale are used to buy government tax benefit bonds like the National Highway Authority of India bonds, REC bonds, among others.
Conclusion
While buying gold ornaments, make sure that you take and retain tax invoices for the purchase. As per tax experts, you do not need to worry if you can explain the source of investment in gold. Further, the CBDT had specified in its press release in 2016 that there isn’t any limit on holding of gold jewellery provided that the source can be explained.
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