If you had invested in any form of gold in the previous year, you would have received excellent returns. But it's also a fact that investors cannot avoid paying taxes regarding their capital gains from gold investments. When you profit from stocks, gold, or even real estate, you are liable to pay capital gains tax for Gold ETF too.
If you have sold a property and made a profit, you can easily avoid paying capital gains tax if you buy another house. In the case of Gold ETFs, this does not occur. You will have to pay tax with no excuses. So, it’s important to learn about taxation on gold ETFs.
Before we discuss taxation on gold ETFs, let us first understand what gold ETFs are. A Gold ETF is an exchange-traded fund (ETF) that seeks to track the price of physical gold. Gold ETFs are flexible, easily accessible, and offer tax advantages. They are linked to fluctuations in the price of gold, and unlike physical gold, which has many service charges, one gold ETF is worth one gram of gold. The ETF provides benefits for both gold investment and stock trading. The value of the Gold ETF rises in parallel with the price of gold. They are also low in risk. Gold ETFs, unlike physical gold, do not incur any manufacturing costs. Gold ETFs also provide investors with high liquidity, and reselling Gold ETFs is much easier than selling physical gold. Furthermore, these funds are placed in your Demat account, making trading simple and seamless.
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Gold ETFs are similar to other mutual funds, with the exception that mutual funds build a portfolio of various equity and debt securities, whereas Gold ETFs will only hold physical gold. The typical functionality of a Gold ETF is as follows:
Let us look at all of the practical reasons why gold is a better investment medium than other options.
Now, let us look at taxation on gold ETFs, or how taxes are applied to gold ETFs. When you buy Gold ETFs and then sell them for a profit, you must pay capital gains tax. Capital gains tax is applicable on Gold ETFs sold at a profit, regardless of how long you have held it. According to taxation on gold ETFs, two types of taxes would be applicable: long-term capital gains tax and short-term capital gains tax.
While short-term capital gains earned before the three-year holding period are added to your income and taxed at the current slab rate, long-term capital gains earned after the three-year waiting period are imposed at 20% with indexation benefits. So, according to the act, if the price of your gold rises by 11% per year while inflation rises to 8% during the same period, the tax will only apply to 3%.
As we know, ETFs that invest in gold is traded on the stock exchange. One gold ETF unit is equivalent to one gram of gold. Taxes on the profits gained on the sale of gold ETFs are treated the same as taxes on the sale of physical gold.
Gold ETFs are ideal tax-efficient instruments because their returns are only subject to long-term capital gains tax and are not subject to wealth tax, VAT, or sales tax.
Gold ETFs, like any other company stock, can be purchased and sold at market prices through the cash segment of stock exchanges. A DEMAT account and a trading account are required to trade in gold ETFs. Units can be purchased online with the assistance of a stockbroker. Once you understand how to invest in a Gold ETF, you can proceed as follows:
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Gold ETFs are a good option for investors who are looking to hedge their portfolios. Investors who carefully learn all aspects of investing in gold ETFs and conduct the necessary research on taxation on gold ETFs will benefit from gold investments.
Yes. Gold ETFs are investment vehicles that, like any other stock, can be traded on the stock exchange. These bonds must be held in dematerialized form for such trading. So, a Demat account and a trading account are required for investing in gold ETFs.
An investor can invest in gold ETFs via any online trading portal provided by the broker or by calling the broker directly to register their trade-in offline mode.
Each unit of Gold ETF weighs one gram and has a purity of 99.5 percent.
No. Gold ETFs, like all other ETFs in India, are managed passively.