Gold has long been a popular investment choice in India, offering both financial security and cultural significance. However, its sale can come with unexpected tax implications. Let’s explore how to save tax on sale of gold.
We guide you through essential information on how to navigate the tax landscape and maximize your returns when selling gold.”
How Is Gold Sale Taxed in India?
The sale of gold in India primarily attracts capital gains tax. This tax is determined by the duration for which the gold has been held :
Short Term Capital Gains Tax on the Sale of Gold
- It is valid for gold sold within two years of purchase.
- The profit from the sale (selling price minus purchase price) is added to the individual’s total income and taxed according to the applicable income tax slab rates. For individuals in higher tax brackets, this can be as high as 30%
Long Term Capital Gains Tax on the Sale of Gold
- It is applicable on gold held for more than two years.
- It is taxed at a flat rate of 12.5% as per the new rules applicable after July 2024. Indexation is no longer applicable on gold investments.
How to Save Tax on Sale of Gold: 11 Best Options
In order to save tax on sale of gold in India, you can adopt the following strategies
Assess Holding Period Tax Implications:
If possible choose the time for which you are holding gold based on the tax implications.
Compare STCG (taxed at individual tax slabs) with LTCG (taxed at 12.5%) and choose the one that minimizes your tax liability.
Utilize Tax-Loss Harvesting:
This involves selling other investments that you have incurred losses on to offset the capital gains from the sale of gold.
Time the sale of underperforming assets and reduce their overall taxable income. This can help lower capital gains tax on their gold transactions.
Consult a Tax Professional:
A trusted tax consultant or experienced firms like PKC Management COnsulting can guide you through the various provisions and exemptions available.
Since they stay up to date with the financial regulations, they help you optimize your tax liability by structuring the sale of gold in the most tax-efficient manner.
Claim Exemption for Residential Property
Under Section 54F of the Income Tax Act, if you reinvest the gains from selling gold into residential property, you can claim an exemption on capital gains.
However, make sure you do it within a specified period, which currently is one year before or two years after the sale.
Consider Gold Loans
Instead of selling gold, consider taking a loan against your gold assets.
This strategy also ensures that you retain ownership of your gold while obtaining funds for immediate needs without incurring capital gains taxes.
Invest in Government Specified Bonds
Consider investing in specified government bonds, which allows individuals to claim exemptions on long-term capital gains.
The investment must be made within six months into entities like the National Highway Authority of India and Rural Electrification Corporation.
Capital Gains Account Scheme (CGAS)
If you plan to reinvest the sale proceeds, but need more time, you can deposit the gains into a Capital Gains Account Scheme (CGAS) to temporarily save the tax.
This keeps the exemption intact as long as you reinvest the amount within the allowed timeframe.
Make Use of Inheritance Clause
If gold is inherited, the capital gains tax is calculated based on the original purchase price by the person who bought the gold.
The holding period is also counted from the original date of purchase. This could help classify it as a long-term asset and reduce your tax burden.
Plan Sales Strategically
Timing the sale of gold can help you save taxes. For instance, if you expect to fall into a lower tax bracket in the next financial year, consider delaying the sale until then.
Alternatively, you can spread out the sale over different financial years to avoid a high tax slab.
Special Provisions for Senior Citizens
In some cases, senior citizens may benefit from lower tax rates or exemptions on capital gains derived from selling gold.
Understanding these provisions can improve your financial planning and reduce overall tax burdens for older individuals.
Gift or Transfer:
You can gift or transfer gold to family members, particularly those in lower tax brackets, or through inheritance.
Gifting gold to relatives is not taxable, and when they sell it, the tax will be calculated based on their income bracket, potentially resulting in lower taxes.
Sell Gold Through Recognized Jewellers
Although not a direct answer to how to save tax on sale of gold jewellery, this can make a significant impact.
Selling gold through recognized jewellers can provide documentation and transparency in transactions.
This helps with establishing the purchase price and any additional costs associated with the gold, which can be deducted from the selling price to calculate capital gains accurately.
Frequently Asked Questions
- What is the tax implication of selling gold in India?
It depends on whether the gold is sold for short-term or long-term capital gains. Short-term capital gains are taxed at your ordinary income tax rate, while long-term capital gains are taxed at 12.5%.
- What is the difference between short-term and long-term capital gains for gold?
Gold held for less than 24 months is considered short-term, while gold held for 24 months or more is considered long-term.
- Are there any tax-efficient ways to invest in gold?
Investing in gold ETFs or mutual funds can be more tax-efficient than physical gold, as the profits from these investments are typically taxed as long-term capital gains.
- What are the tax implications of gifting gold to family members?
Gifting gold to family members is generally exempt from gift tax in India. However, the recipient may be subject to capital gains tax if they sell the gold at a profit.
- What documents are required for the sale of gold?
Documents required for the sale of gold may include proof of purchase, PAN card, and other KYC documents.
