Gold investment: Gold, a highly coveted metal renowned for its ornamental appeal and investment appeal, occupies a prominent status due to the enduring trust reposed in it by the Indian population. Notably, during the financial year 2023-24, India’s gold imports surged to a remarkable $45.54 billion, a substantial increase of 33.34% over the previous year. The upward trajectory of gold’s value has been a dominant trend in recent times, with the current year exhibiting remarkable growth.

During the period from last Dussehra to Dussehra of the current year, gold posted a remarkable return of 23%, outperforming several other asset classes and instilling a sense of assurance among Indian investors .

So far in 2024, the price of gold has shown a steady upward trend, hitting several price milestones during its ascent. Projections suggest that the price is poised to cross the threshold of Rs 80,000 per 10 gm by the Dhanteras-Diwali period. While the upcoming end-of-year holidays are expected to be marked by an increase in gold acquisitions, potential buyers could inquire about the tax consequences linked to the acquisition of physical gold.

Taxation on physical gold

In India, regulations on gold reserves and taxation are in place to regulate imports and encourage financial transparency. Although there is no maximum limit for holding physical gold (e.g. jewelry, coins, bars), the Income Tax Act sets out certain restrictions. It is essential to demonstrate that gold holdings in excess of these limits were acquired using legitimate financing sources. This condition is determined by the Central Commission for Direct Taxes, taking into account the gender and marital status of the taxpayer.

The guidelines set by the Income Tax Department define the permissible quantities of gold that an individual can possess based on their marital status. A married woman is allowed to own up to 500 grams of gold, while single women have a limit of 250 grams. For men, the maximum amount allowed is 100 grams. Adherence to these specified limits generally eliminates the need for extensive documentation.

“Although most personal items are generally not subject to capital gains tax, certain items are specifically excluded from this exemption and classified as capital assets. These include jewelry, archaeological collections, drawings, paintings, sculptures and other works of art. The sale of these items is taxable under capital gains tax regulations. Jewelry encompasses a variety of ornaments made from precious metals such as gold, silver and platinum,” said CA (Dr) Suresh Surana.

Short-term capital gains tax (STCG)

STCG is applicable when gold is sold within three years of purchase. The profit from this sale is considered part of the individual’s income and is subject to tax based on their income tax bracket. For example, if an individual falls into the 30% tax bracket, the profit amount (sale price minus purchase cost) will be taxed at 30%.
Long-term capital gains tax (LTCG):

The LTCG on gold profits from sales made after three years of purchase is set at 20%, with the benefit of indexation allowing the purchase price to be adjusted taking into account the impact of the ‘inflation. This tax may be exempt if the net proceeds are used to purchase tax-advantaged government bonds or invest in real estate within specified time periods.

It is important to disclose gold as part of domestic assets held in tax returns if the taxpayer has a total income of more than Rs 50 lakh.