How Is Sale Of Physical Gold and Gold ETFs Taxed?

Gold Exchange Traded Funds (ETFs) and physical gold are increasingly becoming popular. In fact, with gold having given fantastic returns in the last few years, investors are increasingly looking at Gold EFFs as an avenue for investment.

Gold Exchange Traded Funds are like buying gold in the electronic form. These funds are traded on the various exchanges and you can buy them if you have a demat account. So, just as you buy equity shares, so can you do the same for Gold ETFs.

How are these Gold ETFs and physical gold taxed?

As is the case for asset classes like equities and mutual funds, Gold ETFs too are taxed in a similar manner by dividing them into long term and short term.

So, if you sell Gold ETFs, before a period of 3-years since purchasing them, short term capital gains tax will apply. On the other hand, if you sell gold ETFs after a period of three-years since purchasing them, long term capital gains will apply.

Long term capital gains tax would apply at the rate of 20 per cent, after taking indexation into account. The indexation figures are provided by the government each year and one has to take the same into consideration for the purpose of paying tax.

On the other hand, short term capital gains constitutes a sale before three years of acquiring an asset. For example, if you purchase a gold ETF in March 2018 and sell it Oct 2020, you would need to pay short term capital gains tax. It's important to remember that there is a need to pay capital gains tax and many folks do not know that.

This same capital gains calculation method also applies for gold jewellery, gold bonds etc., and is not restricted only to gold ETFs. Investors should know the cost of acquisition before calculating the same. It is hence necessary to keep a record of the purchase and sale of the same.

About the author:

Sunil Fernandes has spent 26 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal, Oman Economic Review and is currently the Managing Editor for GoodReturns.in. His forte remains stocks, commodities, mutual funds and tax planning.