Gold is a popular investment among Indians. Digital gold, is the newest and the most innovative form of gold investment where gold can be bought online and is stored in insured vaults by the seller on behalf of the customer and hence it helps the investor overcome all the aforementioned issues of physical gold purchases. All we require is Internet/mobile banking and you can invest in gold digitally anytime, anywhere.
Digital gold is issued by the state-owned MMTC (Metals and Minerals Trading Corporation of India), which is associated with PAMP (ProduitsArtistiquesMétauxPrécieux), Switzerland, who is a global leader in branding bullion. By investing in digital gold, one purchases 24K 99.9% pure gold digitally.
Digital gold combines the convenience and speed of the internet with the safety and security of traditional gold purchases. As an investment option, digital gold is considered to be safer and cost-effective. In short, if you’re sure of the jewellery you want, buy physical gold.
Digital Gold represents a digital representation of physical gold, backed by actual gold reserves. It enables investors to own a fraction of gold without the need for physical possession. The concept is based on blockchain technology, ensuring transparency and security in transactions. Each unit of digital gold corresponds to a specific weight of physical gold held in secure vaults.
The Key benefits of investing in digital gold are:
As a coin has two sides, investments in digital gold also have disadvantages. They are:
In India four major types of gold investments are:
Physical Gold This is the most common type of gold investment and in this type of gold investment, we are responsible for the physical security of the gold we own.
Paper Gold This type of gold investment is only done on paper hence we don’t own gold in physical form. Sovereign Gold Bonds (SGBs) and Exchange Traded funds (ETFs) are some of the examples of paper gold investments.
Derivative Contracts In this type of gold investment, gold is kept as the underlying asset. The taxation for this is also very different from the other types of gold investments.
Digital Gold Digital gold investments have become popular in the past few years. It is now very common among youngsters where investment cane be made starting from one Rupees.
Taxation on Digital Gold Investment
Digital gold investment is treated similarly to physical gold ownership when it comes to taxation on gains. The basic difference is in the mode of purchase – one can buy digital gold online and store it securely in vaults by the insurer. Regulatory bodies like RBI or SEBI lack jurisdiction over this investment avenue.
The purchases made on digital gold investments incur taxation following the income tax regulations governing gold investments, which is 20.8%, like physical or paper gold.Digital gold assets when owned for less than 36 months ensures that returns are not taxable directly. In the case of long-term capital gains, you would need to pay a 20% tax on returns outright, along with a surcharge and 4% cess. The holding period determines the amount of taxes you would need to service.
SGB’s are classified as securities and are digital assets, charges or GST do not apply.GST is applicable to the Securities Transaction Tax (STT) and brokerage, amounting to a maximum of 0.75% of the purchase value, resulting in minimal GST liability for SGBs.
TDS is not applicable for SGBs, income tax is levied on the interest earned, which offers a 2.5% per annum interest rate. This is added to the income and taxed according to the applicable tax slab. This may represent an additional tax, but SGBs provide interest, unlike physical gold. The tax regulations on other paper gold mandates 20.8% tax on LTGC, and for STGC, the tax rate aligns with your income slab.
For Non-Resident Indians, investments in physical, digital, and paper gold are permissible except for Sovereign Gold Bonds. The tax rate mirrors that of Indian residents, yet TDS applies to Gold ETF or mutual fund redemptions. TDS redemption rates are 30% for short-term returns and 20% for long-term returns from Gold ETFs and mutual funds.
Conclusion
Digital goldoffer customers a smart way to invest in gold. It is ideal for those customers who want the dual benefits of investing in gold as well as the option to easily take physical delivery. Indians are amongst the second-largest buyers of physical gold in the world. Apart from jewellery, we use it for gifting and as an integral part of every household’s asset. Digital gold is a safe, convenient and hassle-free way for those wanting to accumulate gold, with the eventual option for delivery.
Digital gold is offered by a number of licensed fintech platforms online and can be a good alternative to investing large sums in gold coins and bars. Sovereign gold bonds allow investors to profit from gold price movements while continuing to earn interest rate, just like bank fixed deposits. Both of them act as high-quality alternatives to purchasing actual physical gold.
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