Gold Investments: Forms, Types and Taxation Norms Of Gold Investment

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Stack of gold bars, financial and reserve of value concept. Copy space

Among all the investments you make, it is said that having invested your money in golds is simply regarded as the best investment for your financial life. The fluctuations caused in the economy and in the share market over the last few years has forced the price of the gold to rise at a really unprecedented rate. Moreover, the predictions and the analysis carried out by experts shows that there is really no bounds to the increasing rate if gold in coming future. Thus, gold investments have become increasingly popular and important to have as financial securities and safety.

Without any risks of losses, it is like a safe haven for those who prefer a guaranteed  and significant return. The gold market just like every other investment market is prone to Volatility as the price of gold keeps fluctuating every now and then. Individuals and investors invest in all different types of gold forms depending on their objectives and investment strategy. However, it is important to know the taxation that occurs on every gold investment that you make and what is this tax procedure. You can never be too careful when it comes to making investment and paying taxes.

Different Forms Of Gold Investments

There are so many different and various types of gold forms that people invest in for maximizing their gains and profits. Gold is the number one investment with a very large base of customers pining to get their own part of share. The different forms of gold investments are –

  1. Digital Gold – We are living in a digitalized world. Hence, there are numerous applications that are built these days in which you can easily invest in gold just by a few clicks on your phone. The minimum amount of the gold that an investor can purchase are decided by the apps and is Re. 1.
  2. Physical Gold – One of the most common investment of gold is the purchase of physical Gold. Here, an individual buys the gold physically – that means the gold can be in the form of a jewellery, gold bars or either gold coins. The only party responsible for the safe keeping of the golf is the customer/investor himself.
  3. Paper Gold – Investment in mutual funds, sovereign gold bonds, exchange traded funds (ETFs) are all termed as investments under paper gold. Here, you own the certain amount of gold in paper and not physically.
  4. Derivative Contracts – Not always, but in some derivatives contract, the asset that is underlying is gold. The taxation norms of these contracts are quite separate and different and these options are mostly just available for businesses only and not for individual investors.

Taxation Norms For Different Types Of Gold Investments

Now, we hope you have learnt why gold investments are one of the best type of investment and what are the different types of investment meant for gold. Hence, let’s read further to know about the taxation process and norms for different types of gold investments –

1. Taxation On Digital Gold Investments

Before we know about the taxation process of digital Gold Investments, we should first acknowledge the fact that digital Gold is treated almost as similarly as physical gold ownership when it comes to gains being taxed. Gold investment in digital mode is one of the most recent and latest and has gathered and attracted immense popularity especially from youngsters.

Having an ownership of any digitally Gold asset for less than 36 months doesn’t account to any tax payable and proves that returns are not directly taxed. However, longer period and time frame of ownership requires the individual to pay a tax of 20% with a surcharge and 4% cess.

Hence, if you are looking forward to cash out your investment after say, five years, you will be told pay these amounts as taxes.

2. Taxation On Physical Gold Investment

If you want to assess tax liabilities of physical gold, all you need to do is you have to differentiate between long term gains and short term gains. If it is a short term capital gains, then it is better to sell it before 36 months from the buying date. If sold later then that, it would be termed as long term capital gains and then taxes would be added on it.

Long term capital gains, on the other hand, requires the individual to bear a tax of 20% on the returns with surcharge and 4% cess, same as the digital Gold Investment.

The only difference is that the individual would also need to pay a goods and services fee at the time of purchasing gold physically. Thus, the physical Gold Investment is subjected to a lot if different taxes and payable charges.

3. Taxation On Paper Gold Investment

If the investment on gold has been done by mutual funds and exchange traded funds, they will be treated the same as physical gold. That is a tax of 20% and 2% cess would be charged.

However, the plus point here is that, if you invest in gold through a sovereign gold bond, you are most likely to earn a 2.5% of interest per year. Such interest and earning are referred to as an income from other sources and are then taxed accordingly.

4. Taxation On Gold Derivatives Contract

A mandatory tax of 6% is charged from the returns of the investment when the total turnover of that certain business is less than Rs. 2 crore in that particular year. However, a businessman can claim the returns of the gold derivatives as business income which will in turn relieve some of the burden if paying taxes.

Also, in this tax scheme, your company can hold and limit the tax of gold derivatives to drop to 6%, provided the yearly turnover if the business should not exceed the amount of Rs. 6 crore.

As your take away from this article we would like you to know that there would be absolutely no tax liable on the gold that has been gifted to you by someone or on the gold that you have inherited from your blood-relative. However, if they are some type of different inheritances then you would have to bear the tax if the total value if the inherited assets crosses 50,000 rupees.

Also read:

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