Gold Sovereign bonds or paper gold introduced by the Narendra Modi led government to curb huge import of precious yellow metal in the late 2015, seems more lucrative in the current time when the Goods and Service Tax has now been implemented from July 1.
The ninth tracnche of SGBs issued on Monday since its launch and second in this fiscal year could be a good bet and a more viable investment option than physical gold on the back of these facts.
1. Physical Gold now attracts a single producer levy GST of 3%:
Sales of physical gold as against paper gold issued by the governemnt will attract a GST of 3% going forward.
Before the roll out of GST, gold bars and coins attracted 1-1.2% VAT while excise duty was charged on gold jewellery @ 1%. Traders are of the view that in a country where major chunk of the capital is stored as either bullion, this hike in sale of physical old will boost chances of illicit practices such as smuggling.On the other hand, SGBs attract no such taxes on purchase i.e no producer levy as there is no underlying physical asset attached to the investment option.
2.Annual interest of 2.75% per annum payable half-yearly
Paper form of gold which provides an interest of 2.75% on a semi-annual basis shall score over other physical jewellery which do not amount to any gains other than by way of capital appreciation, which though can be redeemed only upon sale.
3. No capital gains on redemption of SGBs:
he bonds which can be secured in dematerialized form are listed on exchanges which means that investors can exit the investment in these bonds before maturity at the prevailing market price. Also, no capital gains implications arise on redemption of SGBs as against physical gold which attract both short term and long-term capital gains implications.
4.No associated charges for SGBs as that accrue with physical gold on storage in bank lockers
Unlike physical gold that attracts storage cost per se that associated with maintaining a bank locker, SGBs can be secured in demat form and do not entail additional storage cost.
So, with an annual consumption of 850-950 tonnes, SGBs is set to be the next investment option that shall get popular with the investing community in the precious yellow metal. Also, price differential in the two investment forms, is likely to go well or boost the demand for SGBs going forward as per analysts.