Do you have a special affection for precious metals such as gold? If yes, then you do not necessarily have to invest in the physical gold only. You may even invest in their digital avatar as well. These include sovereign gold bonds (SGBs) and gold ETFs (exchange traded funds).
It is vital to note that the tax treatment of digital gold and physical gold is same while sovereign gold bonds (SGBs) being the exception. Another noteworthy distinction is that physical gold entails cost of making and storing unlike digital gold, which does not involve such costs.
Tax treatment of gold instruments:
Sovereign gold bonds (SGBs): These instruments have unique income tax treatment. If you sell them in the secondary market within three years of buying them, they are taxed at the slab rate.
However, if they are sold after three years of holding, they attract long term capital gains tax of 20 percent after indexation. And in case you hold them to maturity, they are not taxed at all.
It is vital to note that these bonds have a maturity period of 8 years with early redemption option available after 5th year. The annual income of 2.5 percent that these bonds offer are taxed as per the slab rate.
| Form of gold | Rate of tax | Extra cost/ income |
| SGBs | 20 % long term capital gains after 3 years | 2.5% income |
| Gold ETFs | Taxed as per slab (bought after march 31, 2023) | No charges/income |
| Gold coins | 20% long term capital gain after 3 years | locker charges |
| Gold jewellery | 20 percent long term capital gain after 3 yrs locker | locker + making charges |
Gold exchange traded funds (ETF): Earnings made on ETFs are taxed as per income tax slab regardless of when you sell them.
There are 17 gold ETF schemes with total assets under management amounting to ₹28,529 crore as on Feb 29, 2024, shows the AMFI data.
Physical gold (coins/ biscuits): Tax treatment of physical gold is similar to digital gold and taxed at long term capital gains rate of 20 percent plus 8 percent cess when sold three years after buying it. And when it is sold within 3 years, the gains are added to the income and taxed as per the slab.
These are better than jewellery items as they don't entail making charges. But since these are to be kept in safe custody, they involve cost to save such as locker charges.
Jewellery items: These entail a cost to store in a locker, but turn out to be more expensive than digital gold as well as gold coins because they also include making charges which are around 10-15 percent.
FAQs
Physical gold and silver investments are subject to capital gains tax, calculated based on the difference between the price you paid and the price you sold it for. The Internal Revenue Service (IRS) classifies gold and silver as collectibles. Hence, they are taxed at a maximum rate of 28% on long-term capital gains.
What asset class is gold? ›
A Gold Investment in a portfolio is perceived by many investors as a hedge against inflation and recessions, hence its reputation as a “safe haven” asset class.
What class of investment is gold? ›
Investors have often used gold tactically in their portfolios, with an aim to help preserve wealth with a relatively liquid asset that can potentially help navigate risk during market corrections, geopolitical stress or persistent dollar weakness.
How does gold work as an investment? ›
Gold is seen as a hedge against inflation and a store of value through market ups and downs. Investors can hold physical gold directly as coins, bullion, or jewelry; or indirectly via mutual funds, exchange-traded funds (ETFs), gold derivatives, or gold-mining stocks.
Do you have to pay taxes on gold you mine? ›
Sorry - found treasure is taxable
A few years ago, a couple in California found $10 million worth of gold coins on their property. Which is basically the dream (and was my childhood retirement plan, if we're being honest). Well, they got to keep about 53 percent of that dream.
How much gold can I sell without reporting IRS? ›
Let's debunk some misconceptions about precious metals reporting; it's not the gold or silver you're buying or selling that the government wants reported, but rather the cash transactions exceeding $10,000. If you pay in paper money, and it's over this threshold, that's when the IRS requires a Form 8300.
How to start investing in gold? ›
How Do Beginners Buy Gold? Mutual funds and ETFs are probably the smartest options for beginners. Each share of these securities represents a fixed amount of gold, and you can easily buy or sell these funds in your brokerage account or retirement account.
Is gold an asset or investment? ›
Gold is a highly liquid yet scarce asset, which is no one's liability. As an investment it can play four fundamental roles in a portfolio: a diversifier that can mitigate losses in times of market stress. a source of long-term returns.
Is gold worth investing in? ›
Investing in gold may provide investors with a hedge against inflation and economic uncertainty. It can also diversify an investment portfolio, reducing overall risk due to its potentially low correlation with other asset classes.
Does gold ever lose value? ›
Gold Is a Scarce Resource
Gold has been used as a form of money for centuries and its value does not depreciate over time. The value of gold tends to increase over time due to its limited supply. There is a finite amount of gold reserves in the world, so as the demand increases, the price of gold will also rise.
You can start buying gold in amounts as low as 1 gram which is much smaller than the smallest coin. There's no upper limit. You can deal thousands of ounces if you want to.
Should I hold gold in my portfolio? ›
Given its low correlation with other asset classes, such as stocks and bonds, gold can provide an important role in portfolios: diversification. Gold's ability to act as a “store of value” can help mitigate risk during times of market volatility and economic uncertainty.
Is there a downside to investing in gold? ›
However, gold is typically a poor investment option when the economy is strong. It will often lose money during these periods as investors sell gold to put their money in the stock market and other growth assets. In the long run, gold has a significantly lower average annual return than stocks.
Is it smart to put your money in gold? ›
Gold can serve as a hedge against inflation and is considered an alternative asset, other than cash, stocks or bonds, and often retains its value during times of political and economic uncertainty.
How much gold can you buy for $1000? ›
You can invest $1,000 in gold, but depending on the form of gold, you may get more or less out of it. For example, $1,000 in gold bullion may get you about 0.5 oz of gold bullion. But you can get around four 1/10 oz American Gold Eagle coins for $1,000.
How to avoid capital gains tax on gold in the USA? ›
How can I avoid capital gains tax on gold?
- Don't invest in physical gold.
- Keep your investments for over a year.
- Utilize your capital losses.
- Use a 1031 exchange.
No State Sales Tax:
- Alaska: Bullion and numismatic coins are exempt from sales tax.
- Delaware: No State Sales Tax (Bullion and numismatic coins are exempt).
- Montana: Bullion and numismatic coins are exempt from sales tax.
- New Hampshire: No State Sales Tax (Bullion and numismatic coins are exempt).
If you sell a large quantity of certain types of gold to a dealer or broker, they may be obligated to report the information to the IRS. The information reported can include your name, address, tax identification number, date of sale, and proceeds.
Are inherited gold coins taxable? ›
Keeping your gold inheritance doesn't trigger tax unless you sell and realize a gain. The basis price for calculating gain is the fair market value of the gold at the time you inherited it. Always consult a tax advisor to ensure you're complying with all tax laws.
