We buy gold and it keep it for decades. In fact, gold generates so much wealth over a period of time, that we may have to pay wealth tax on gold. Apart from this there is the usual capital gains tax that is applicable on gold.
Very few individuals know that there are taxes that are to be paid on gold in India.
When to pay wealth tax on physical gold in India?
First, let us take the issue of wealth tax that is payable on gold. Under the present applicable law wealth tax has to be paid, if your assets are over Rs 30 lakhs.
If you have paintings, cars and gold jewellery exceeding Rs 30 lakhs, you have to pay wealth tax.
So, let us assume that you have 1 KG of gold. At the present rate of Rs 31,000 per 100 grammes of gold, the valuations comes to around Rs 31 lakhs.
What this means is that it crosses the threshold limit of Rs 30 lakhs. Now, when that happens you have to pay a wealth tax on gold.
How much wealth tax is to be paid in gold?
One thing is certain that as per the present tax laws you have to pay tax on gold. As per the present provisions, you have to pay 1 per cent of the amount as Wealth Tax on gold, if the valuations is above Rs 30 lakhs.
If you do not file a tax returns for Wealth Tax, the Income Tax Department can send you a notice.
In fact, there can be a search operation, and the Income Tax Authorities have the power to seize your gold.
To avoid such a hassle it is better to pay the applicable wealth tax on gold in India.
How Is Capital Gains Tax On Gold Charged In India?
Now, there is no harm in buying and holding the precious metal. But, if you buy and sell gold at a profit you are liable to pay capital gains tax.
Gold prices in the last 1 year have gained 30 per cent. Those who have bought gold have made a killing in terms of price appreciation in the last 1 year. However, if they sell the gold now, they have to pay the applicable capital gains tax.
If you sell gold before 3 years, you have to pay capital gains tax, as per your present Income tax slab. So, if you are in the lower tax bracket, you end-up paying 10 per cent and in the highest 30 per cent as capital gains tax.
What is the tax payable on gold in the long term?
If you sell gold at a profit after three years, you have to pay long term capital gains tax on gold. The present applicable rate for the same is 20 per cent with indexation.
So, you first need to take into account, the indexation, before calculating the capital gains tax on gold. So, whether long term or short term, there is a tax to be paid on profit on sale of gold.
When are Gold ETFs taxed in India?
The Tax rates for Gold ETFs, is the same which is applicable for physical gold. In fact, a lot of ETFs can be converted into physical gold For example, MOST Shares Gold ETF has the option of converting Gold ETFs to physical gold. This does not mean, you can save tax by converting one way to the other.
There is no way you can do that since Gold ETFs and physical gold, both attract a capital gains tax.