While for most time, the return from gold are not that rewarding, over the last one year or so, it has managed to deliver huge returns to the tune of 40%. This is because of uncertainties clouding both geo-political and macro-economic front globally.
What investors should do now?
Given the correction to the tune of almost Rs. 5000 from record highs of Rs. 56000 per 10 gm struck in early August 2020, you may consider taking this route, but remember the allocation should be only up to a defined level of say between 5-10%.
Here you need to remember the returns of similar scale should not be expected unless similar unrest is seen.
And if you have some surplus, one of the best ways to invest in the precious yellow metal considering income tax implication is discussed hereforth:
1. Gold ETF or a Fund of Fund route:
This form of investment in gold shall mean a lower taxation implication for you, we will explain how. First, this is the financial investment in gold with underlying as gold and provides return basis the return in the gold.
Also, these ETFs other than the stupendous return they have managed to deliver in the last one year are highly liquid.
There is high transparency with NAV being declared on a daily basis. Also, unlike physical gold where purity, theft are some other concerns there is no such concern with such investment.
Now the tax treatment of Gold ETFs when in case redeemed within just 3 years of holding is similar to taxation of physically gold. It is lucrative tax wise, when it is sold off after a period of 3 years of holding and the capital gains shall be classified as short term and will be added to person's gross income. This is because then the fund shall be treated at par with debt funds and taxed at 20% with indexation benefit.
2. Sovereign Gold Bonds:
These bonds which are issued by the RBI on behalf of the government of India offer 2.5% per annum interest. And while the interest income is charged under the income from other sources head as per the tax slab of the concerned taxpayer, gains at maturity shall be exempted from capital gains tax.
And if the investor exits the scheme after 5-years of investment then capital gains arising from such a sale will be taxed as long-term capital gains at 20 per cent with indexation.
3. Digital Gold:
Here for the latest investment in gold i.e. in digital form and can be purchased for as less as Rs. 1 is taxed similar to physical gold and capital gains taxation shall be based on the holding period.
So, gold ETFs or fund of funds if redeemed after a 3-year span qualify to be a better gold investment considering the taxation aspect.