The Tax Implications
on Selling Gold
Since ancient times, gold has been used to make jewelry, coinage, and other beautiful items. Gold is a precious metal. The percentage of gold in a specific object is referred to as the karat, which is how the purity of gold is expressed. The most popular karats are 10K, 18K, and 24K, each of which has special characteristic
1. Import Duty in India
The government imposes an import duty, also known as customs duty, This duty is a significant consideration for a country like India, which relies heavily on gold imports to meet its substantial demand, given the limited domestic gold mining activity on gold imports. Recently, India reduced customs duty on gold bars from 12.5% to 10%. After adding GST, the total tax on physical gold is now 10% (customs duty) plus 3% flat GST.”
2. Goods and Service Tax (GST)
When gold is sold by jewelers or merchants, the cost of GST is included in the final price passed on to the end consumer. In the case of physical gold purchases, a 3% GST is applied. For instance, if you import gold worth INR 1 lakh, the 3% GST is calculated on the value after adding import duty and cess, resulting in an additional INR 3,450..
3. Making Charges and GST on It
Making charges, although not classified as a tax, are fees associated with the design and crafting of gold into coins or jewelry. Therefore, these making charges attract an additional GST. While the GST on making charges may not be explicitly separated on your bill, it is typically included within the making charges category in the final invoice when purchasing gold.
The GST rate on making charges is 5%. For instance, if we consider a minimum making charge of 8% on the import of INR 1 lakh gold (resulting in INR 9,200 in charges), and then apply a 5% GST on these making charges (equivalent to INR 460), the total cost for the gold purchase would amount to INR 1,28,110v
4. Tax Deducted at Source (TDS)
If one buys physical gold of more than INR 1 lakh then they will be charged TDS at 1%. This amount can be utilized in the annual tax liability.
1. Short-term Capital Gains Tax (STCG)
If you sell gold within three years of purchasing it, any profit you make from the sale falls under short-term capital gains. This gain is then added to your total income and taxed at the applicable income tax rate based on your tax slab. For instance, if your income falls within the 30% tax slab, the gain amount (calculated as the sale price minus the purchase cost) will be subject to a 30% tax rate.
2. Long-term Capital Gains Tax (LTCG)
Long-term capital gains tax is applicable when gold is sold after being held for more than three years. For such gains on gold, the LTCG tax rate is 20%, and taxpayers can benefit from indexation, which adjusts the purchase price to account for inflation.
There are ways to potentially waive off this tax:
- Investment in Tax Benefit Bonds: LTCG tax can be waived if the entire net proceeds from the gold sale are invested in government tax benefit bonds, such as National Highway Authority of India bonds or REC bonds.
- Investment in Property: Another option to save on taxes is to use the net proceeds from the gold sale to purchase a house. This can be done either within one year before the sale of gold, within two years after the sale, or by using the proceeds to construct a house within three years of the gold sale
3. GST on Exchange of Jewelry
Exchanging jewelry can be a complex process, and it’s crucial to be vigilant to avoid potential misunderstandings. When you exchange gold jewelry for another piece of the same quantity (e.g., exchanging 100 grams of jewelry for 100 grams of different jewelry) at a jeweler, this transaction typically does not attract GST on the gold itself.
In such cases, you would only need to pay the difference in making charges, if any, and any applicable taxes on that difference. However, it’s essential to carefully review the bill to ensure that the exchange amount is not subject to additional taxes.
Selling gold can have significant tax implications, so it’s crucial to be aware of the rules and regulations that apply in your jurisdiction. Whether you’re selling gold as part of an investment strategy or as a means to convert assets into cash, understanding the tax implications can help you make informed decisions and ensure compliance with tax laws. Always keep accurate records of your gold transactions and seek professional advice to navigate the complexities of gold taxation effectively.