Don't get caught off guard: Know gold's tax rules before buying or selling

New Delhi (The Uttam Hindu) : In India, gold isn't just limited to jewelry; it's considered both a safe investment and a traditional asset. People purchase large quantities of gold for weddings, festivals, and future savings. However, investors often forget that tax rules apply at every stage of buying, storing, and selling gold. Lack of proper knowledge of these rules can result in significant tax losses. Therefore, it's crucial to have a thorough understanding of taxation before investing in gold.

The first burden when purchasing gold is the GST. Whether you buy gold jewelry, gold coins, or invest in digital gold, you pay 3% GST on the price of the gold. Additionally, if you purchase jewelry, you have to pay an additional 5% GST on the making charges. This means your total cost increases upon purchasing the gold itself.

When you sell gold, income tax (capital gains tax) is levied on it. This tax is levied not on the sale price, but on your profit. The tax rate depends on how long you held the gold. If you sell the gold within 3 years (36 months), the profit is considered short-term capital gains (STCG) and is added to your annual income and taxable according to your tax slab.

However, if gold is sold after more than three years, it is subject to long-term capital gains (LTCG) tax. This tax is 20 percent, but it also offers the benefit of indexation. Indexation increases the purchase price based on inflation, reducing the taxable profit. This is considered more beneficial for long-term investors.

People also have many questions about inherited gold. According to income tax rules, inherited gold is tax-free. However, if you later sell that gold, you will be subject to capital gains tax. Importantly, the holding period here is calculated not from your purchase date, but from the purchase date of the person from whom you inherited the gold.

The Income Tax Department also sets a limit on the amount of gold that can be kept at home, provided the source of the gold is legitimate. Generally, married women can possess up to 500 grams, unmarried women up to 250 grams, and men up to 100 grams without being questioned. If you possess more than this amount, you must prove that it was inherited or purchased from declared income.

The tax rules for digital gold are similar to those for physical gold. It attracts a 3% GST when purchased, and STCG or LTCG tax when sold, depending on the holding period.

Overall, while gold is considered a safe investment, ignoring tax rules can be costly. Therefore, it's important to have complete tax information before investing in gold to avoid losing profits.