How to Give Tax on Gold while Purchasing and Selling in India

By | November 15, 2018

One can buy gold in India in more than one form such as in the form of physical gold like bar, jewelry and gold coins, in the form of bonds and ETF. The tax on gold is different for the different form of gold. Here we will discuss the levy of the gold in various forms of gold.

Tax when you purchase gold

Gold is really very precious metal which has been used for various purchases in India. People in India love consider buying gold as a great way of investment. Have a look at these tax levied by the government of India.

GST on gold purchase

  1. If you buy gold from the jeweler who does not charge you making charges then you just have to pay 3% of GST on the gold purchase value.
  2. If you buy gold from the jeweler who charges you separately for making charges and as well as on gold then you need to pay tax on both the gold value and making charges. In such case you need to pay 3% tax on the purchased gold value and 18% tax on the making charges of the gold.
  3. If you purchase gold by returning your old gold then you don’t need to pay any type of taxes although if you purchase more gold as compare to the returned gold then you need to pay tax on the gold you have purchased freshly.
  4. In case if you don’t buy any gold while you sold your old gold then you don’t need to pay any tax.
  5. If you have your own gold and you want to get jewelry from this gold then you just need to pay tax on the making charges of the gold.

This is how you need to pay GST tax in purchasing gold.

Tax when you sell physical gold such as gold bars, gold coins, jewelry etc

The gold you buy from a gold jeweler in the form of the physical gold which has been considered as a capital asset of the one.

If you hold this gold for less than 3 years then it is considered as short-term capital asset and the tax levied on one is according to the tax slabs of individual while in another case, if one holds gold for more than three years then it is considered as long-term capital asset and the tax levied on this is 20%.

Note: The tax does not incur on the entire sale proceeds but the tax has been levied on the capital gain amount.

Here is the formula to calculate short-term capital gains and long-term capital gains

Short-term capital gain tax = Sale price – purchase price

Long-term capital gain tax = Sale price – indexed cost of acquisition

Here the sale price is determined as the cost at which your sales your gold while the gold purchase price can vary on different scenarios.

So, How to find the actual purchase rate of the gold

  • If gold is inherited

If the gold has been inherited before 1st April 2001 then you can choose either FMV or the COA of the previous owner of the gold from you had inherited the gold. In another case, if the gold has been inherited after 1st April 2001 then the cost of the gold purchase by the previous owner is the same as the purchase price of you.

  • If you have purchased the gold

If the gold has been purchased before 1st April 2001 then you can either choose the FMV as on 1at April 2001 or you can also choose the purchase price of the gold. If the gold has been purchased after 1st April 2001 then the actual cost of the gold is considered as the purchase price of the gold.

Tax on the sale of gold monetization scheme bond

If you have free gold at your home then you can get the benefit of interest with this government scheme after depositing your gold.  In this case, the interest earned with this gold monetization scheme is free from tax.

Tax on sale of gold exchange-traded fund

Gold exchange traded fund is a way in which one saves gold in the form of paper gold or Demat gold. Gold exchange traded funds are taxed the same as that of the gold jewelry.

Tax on sale of gold Sovereign bonds

The government of India issues bonds from time to time. This offers you two main advantages as you will get capital gain when you sell it as well as the government offers you a fixed amount of interest on this investment.

However, usually, the tenure of the bond is 8 years while if you have an emergency then you can also redeem it after 5 years. The minimum investment for this is 3 gm while the maximum investment for this is 500 gm.

The tax rate depends upon the redeem time as if one redeem it on the maturity then you don’t need to pay tax while in another case, if you redeem the amount before the maturity period then you need to pay tax according to the capital gains.

TCS on gold jewelry

The government of India has incurred 1% of TCS tax on cash payments for buying gold of Rs. 2,00,000 and more. Earlier it was for 5,00,000 Rs. This will leave great impact n economy and will be a great relief for those who need to buy jewelry for marriage or for other purposes.

Tax-free gold

If you have received gold as a gift from someone for your marriage then you don’t need to pay tax on this jewelry.

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