Investment in gold as an asset class doesn’t attract any tax effect. However, there could be tax implications on sale of gold ornaments and jewellery.
As per the Income tax act, ornaments made of silver, gold, platinum or any other precious metal and precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel are treated as capital assets.
Therefore, taxable capital gains whether long-term or short-term can arise at the time of sale. Gold or jewellery when held for more than 36 months is treated as long-term capital asset. If held for lesser than 36 months, it is treated as a short-term capital asset.
While calculating short term capital gains, the investor is allowed to deduct the cost of purchase from the sale value. In the case of long-term capital gains, the inflated cost of acquisition via indexation is allowed as a deduction.
Any tax liability that arises from long-term capital gains on sale of gold or jewellery can be reduced by investing in a residential house under Section 54 F of the IT act. Even capital gains bonds such as those of NHAI and REC can be used to set off the tax liability.
Short-term capital gains can be adjusted against short-term losses of any kind.
It is important to note that gold falls under the list of taxable capital assets under the Wealth Tax Act. This tax is levied on jewellery, bullion, furniture, utensils or any other article made wholly or partly of gold, silver or platinum. However, wealth tax is attracted only if the net value of taxable assets exceeds Rs. 30 lakhs.
Author Bio :
Aashish Ramchand is Co-founder of an e-filing and online tax advisory website. A chartered accountant by profession and passionate about Indian taxation advisory and love to write about the Indian tax system and its various nuances. He suggests to visitwww.makemyreturns.com for more information.Google+