If you are buying and selling gold in any form this Diwali, knowing the new income tax rules for capital gains on gold is important. Here is a look at the taxes you pay while buying gold in different forms this Diwali.
Gold Jewellery
Gold jewellery can be bought in the form of necklaces, earrings, rings, etc. When you buy gold jewellery, you have to pay Goods and Services Tax (GST) at 3%. The GST is levied on the gold jewellery prices plus making charges. There is no income tax on buying gold jewellery.
If you are exchanging your old gold jewellery for new one, an exchange of old gold jewellery will be considered as selling of old gold. The capital gains tax rules will be applicable on the sale of old gold jewellery.
As per the new income tax rules, the capital gains will be long-term capital gains (LTCG) if the old gold jewellery is sold after holding it for two years. The LTCG tax rate of 12.5% will be applicable. However, there will be no indexation benefit in this.
If the old gold jewellery is sold before the completion of two years from the date of purchase, then the gains will be considered short-term capital gains (STCG). STCG will be taxed at income tax slabs applicable to your income.
Digital gold
Naveen Wadhwa, Vice President of Research and Advisory of Taxmann.com says, “The income tax laws on buying and selling digital gold are the same as physical gold.”
Gold mutual funds and Gold Exchange Traded Funds (ETFs)
Wadhwa says, “The new capital gains tax rules will apply to gold mutual funds and gold ETFs from April 1, 2025. Till March 31, 2025, old capital gains tax rules will apply on buying and selling of gold mutual funds and gold ETFs.”
This is because the government has amended the definition of debt mutual funds. The new definition will come into effect from April 1, 2025. Currently, the specified debt mutual fund is defined as a mutual fund where not more than 35% of its total proceeds are invested in the equity shares of domestic companies.
As per the amended definition, a mutual fund is categorised as a debt mutual fund that invests more than 65% of its total proceeds in debt and money market instruments or a fund-of-fund with the underlying having a similar debt investment mix.
As per the old capital gains tax rules, the capital gains from selling gold mutual funds and gold ETFs will be considered STCG. The capital gains will be taxed at the income tax slabs applicable to your income.
Wadhwa explains the new capital gains tax rules that will apply from April 1, 2025:
Gold mutual fund: The gains will be considered STCG if sold before the completion of 24 months from the investment date. STCG will be taxed at income tax slabs applicable to your income.
If the gold mutual fund is sold after the completion of 24 months from the investment date, then gains will be termed as LTCG. The LTCG will be taxed at 12.5% without indexation benefit.
Gold ETFs: In the case of listed gold ETFs, the gains will be considered STCG if sold before the completion of 12 months. STCG will be taxed at income tax slabs applicable to your income.
If the listed gold ETF is sold after the completion of 12 months, then gains will be considered LTCG. LTCG will be taxed at 12.5% without indexation benefit.
