By Anshul
August 25, 2022, 6:23:57 PM IST (Published)
3 Min Read
Buying gold is considered auspicious in India. Also, it is regarded as a safe-haven investment. The value that it contains can be said to be drawn from various things — its history as a currency, and later, as the material (gold reserve) backing the currency.
Those who consider gold as an investment option either purchase gold in physical forms such as coins, bars, jewelry or in paper forms such as gold exchange-traded funds (Gold ETFs), Sovereign gold bonds (SGBs) issued by Reserve Bank of India and Gold Mutual Funds (Gold MFs).
Even though the majority of Indian families purchase and own gold, people should be aware of the legal limits on how much gold they can acquire.
So, what are the gold possession rules in India?
Our country established the Gold Control Act in the year 1968. This law prohibited citizens from having gold beyond a certain quantity. However, this act was abolished in 1990.
As a result, there are no restrictions on the quantum of gold one can hold in India as long as the holder has a legitimate source and documentation of the gold, said Vijay Singhania, Chairman, TradeSmart in an exclusive conversation with CNBC-TV18.com.
However, it’s vital to see here that income tax authorities have a different set of instructions, especially when it comes to seizures during raids, The Central Board of Direct Taxes (CBDT), according to its instruction to income tax officials on 11-05-1994 directed them not to seize any gold ornaments and jewellery up to a certain limit based on the gender of the person and their marital status.
According to the circular issued, income tax officials will not seize gold ornaments up to 500 grams for a married woman and 250 grams for an unmarried woman.
For men, irrespective of their marital status, the CBDT has instructed a lower limit of 100 grams for each male member of the family, Singhania told CNBC-TV18.com.
This means that at no point does the CBDT instruction specify any limit on how much gold can one hold but only provides relief to taxpayers from their jewellery being seized during raids.
How is gold taxed in India?
The taxation on the gold investments depends on the period of holding by a taxpayer. Investment in physical form is taxable like any other capital asset.
If gold is held for more than 3 years, it is taxable as Long Term Capital Gain (LTCG) at 20 percent (exclusive of education cess and surcharge) and Short Term Capital gain is taxable at normal tax slab applicable to the investor.
Gold ETFs/gold MFs are also taxable like physical gold.
SGBs, on the other hand, are taxed as income from other sources. In case the bonds are held to maturity, the capital gains are tax-exempt. However, capital gains are payable on the transfer of SGB like transfer of physical gold or ETF or Gold MF.
The bonds are traded on exchanges in demat form and redeemable after the fifth year. When sold before maturity, the gains are long-term capital gains and taxable at 20 percent (plus education cess and surcharge). The purchase price can be indexed using the cost inflation index.
