While both physical gold and gold ETFs share identical short-term and long-term tax rates, exchange-traded funds reach long-term status after 12 months, whereas physical gold requires a holding period exceeding 24 months. Purchasing physical metal also triggers a 3% Goods and Services Tax on the total invoice, including making charges, while personal sales back to jewelers escape GST. Furthermore, gold ETFs are excluded from the Rs 1.25 lakh annual long-term capital gains exemption available to certain equity investments.
Key points
Investors reach long-term capital gains status on gold exchange-traded funds twelve month…: Investors reach long-term capital gains status on gold exchange-traded funds twelve months faster than on physical gold assets.
Gold exchange-traded funds are not eligible for the Rs 1.25 lakh annual long-term capital…: Gold exchange-traded funds are not eligible for the Rs 1.25 lakh annual long-term capital gains exemption provided to equity investments.
Maintaining original invoices and inheritance records is essential for verifying acquisit…: Maintaining original invoices and inheritance records is essential for verifying acquisition sources and calculating capital gains on physical gold.
Sources checked by our analysis pipeline: 1
On Diwali, many people buy physical gold in the form of jewellery, coins, bars, etc. Buying the precious metal on the festival of light is considered auspicious. But many also buy physical gold as an investment, assuming that investing during such a festival will bring them luck. But when you invest, the key is not just to look at gold’s price appreciation. You also need to look from a post-tax gains perspective.
To make the most of gains, many experts advise buying gold in its electronic form, such as gold exchange-traded funds (ETFs).
If you need to invest in gold purely for gains, which can be a better choice: physical gold or gold ETFs?
Before deciding on which form of gold to pick, you need to have a look at the taxation of physical gold and gold ETFs.
Chintan Ghelani, partner, direct tax, N.A. Shah Associates LLP, says that when you sell gold, you need to pay the Short Term Capital Gain (STCG) or the Long Term Capital Gain (LTCG) tax depending on the holding period, but when you sell…
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