Kolkata: The increase in import duty has resulted in a huge surge in illegal gold imports into India. The increase in taxes triggered a surge in unofficial inflows of the yellow metal for July to September. The quarter recorded a jump of more than 1,500 per cent to 50 metric tonnes from 3 tonnes a year earlier, the World Gold Council stated in its report.
Gold prices have been going South over the past few weeks. The WGC data showed the gold rate going down by around 7.23% in October. It attributed the decrease in prices to a firm US dollar, rising inflation concerns and shifting interest rate expectations.
Consumers need to be aware of the taxes applicable when selling gold.
People invest in Gold through various means, i.e., by buying jewellery, pumping money into Gold ETFs and purchasing units of gold mutual funds. The Indian government applied new tax rules from July 23, 2024.
According to the new rules, the government applies a flat rate of 12.5% Long-Term Capital Gains (LTCG) on gold ETFs, metallic gold and mutual funds. Prior to July 23, buyers used to get indexation benefits. Also, the government has stopped the very popular Sovereign Gold Bonds scheme. If any individual plans to sell SGBs before maturity, one has to pay LTCG at the rate of 12.5%.
If any individual is buying Gold in the form of jewellery, three per cent GST is applicable on the value of gold and 5% GST on the making charge. If a person sells Gold, you may have to pay income tax.
Short Term Capital Gains (STCG) or LTCG is applicable depending on the time period one holds the gold possession. If one possesses gold for 24 months or a shorter time period, STCG is applicable. The charges are applicable as per the slab rate of the seller’s income. But if one possesses Gold for more than two years, the individual is mandated to pay LTCG at the rate of 12.5%.
Gold ETFs
Gold Exchange-Traded Funds (ETFs) are easy to possess as there is no risk associated with their physical storage and purity. Investors can choose between gold ETFs and gold mutual funds, depending on their investment preferences. The tax treatment of gains from these investments depends on the holding period. If an investor holds the investment for 12 months or less, the gains come under the category of Short-Term Capital Gains (STCG) and are taxed accordingly. However, if the holding period is more than 12 months, the gains will be categorised as Long-Term Capital Gains (LTCG).
Sovereign Gold Bonds
The Sovereign Gold Bonds (SGBs) scheme was started by the government. Under this scheme, the government securities are issued by the Reserve Bank of India (RBI) on behalf of the Centre. The scheme was introduced with the aim of reducing the demand for physical gold. Since most of the demand for gold in India is met through imports, the scheme ultimately helped in maintaining the country's Current Account Deficit within sustainable limits.
The Bonds bear interest at the rate of 2.50 per cent (fixed rate) per annum on the amount of initial investment. Interest is credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.
Meanwhile, the government has stopped any fresh issuances of SGBs in recent times.
Importantly, if an individual holds the bonds till maturity one does not need to pay income tax.