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How to Calculate Tax on LTCG from the Sale of Gold

31 January 2023

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Table of Contents

What is CGT or Capital Gains Tax?

A capital gain is any profit or payment made by a person through selling a capital asset. The profit made from the sale of the capital asset is taxed under the title "Income from Capital Gain." Profit is created when a capital asset is sold for more than it costs to purchase.
Since there is merely a transfer of ownership and no sale, the inherited property is exempt from capital gains tax. The Online Income Tax Act of 1961 completely exempts any asset obtained as a gift via a bequest or inheritance. However, CGT will be imposed if the inheritor chooses to sell the asset.

Capital Gains Tax Types

Capital gains tax is the term used to describe the tax imposed on profits made from the sale of capital assets. Short-term and long-term capital assets are the two categories into which capital assets are often divided.
1. Long-Term Capital Gain
A capital asset is said to be long-term if it has been kept for more than 36 months. Assets owned for less than a year are short-term capital assets. This rule will apply if the transfer date is after July 10, 2014. (Regardless of when the transaction was made). The investments are as follows:

Shares of stock, either equity or preferred, of a business listed on an Indian stock market.
The Indian stock market lists securities (such as debentures, bonds, and government securities).
Irrespective of quotation, UTI units.
Units of equity-oriented mutual funds, whether listed or not.
Bonds have a zero coupon, whether or not they are traded.

The assets above are considered long-term capital if kept for more than a year.
2. Short-Term Capital Gain
Short-term capital assets are those that have been held for less than 36 months at the time of purchase. For immovable property, such as land, buildings, and homes, the 36-month threshold has been lowered to 24 months as of FY 2021–22.
The previous owner's holding period is also considered when deciding if an asset was acquired by will, succession, inheritance, or gift and whether it is a short-term or long-term capital asset. Accordingly, the holding period for bonus or rights shares starts on the day they are allocated.

What Amounts Are Considered Long-Term Capital Increases?

The concept states that assets that provide returns over one to three years might be considered long-term capital gains tax when determining what is deemed a drawn-out capital increase. This assumes that a person has owned an enterprise for a significant amount of time before relocating it, in which case the earnings from the business at the time of the relocation will be seen as a protracted capital increase. The following list includes some investments that may result in long-term capital increases.

Sale of Real Estate

The money you get when you sell a home you've owned for around three years might be considered long-term capital additions.

Sale of Agricultural or Rural Land

The proceeds are regarded as long-term capital additions if agricultural land is sold for between one and three years after being owned.

Ventures with Common Assets

The gains from the endeavour are referred to as long-term capital rises if you invest resources in shared assets and retain the investments for around a year.

Stocks

Because stocks and bonds may be kept for extended periods, the earnings from holding them qualify as long-term capital growth.

How Can LTCG Tax Be Calculated from The Sale Of Gold?

Gold asset transfer profits are regarded as capital gains and subject to taxation under the "Capital Gains" heading. Learn more about the tax implications of long-term capital gains on selling gold.
People often attempt to monetise their gold possessions, especially jewellery, when they desperately need money. Gold prices have risen in recent months. Many people have been motivated to consider selling their used gold jewellery.
To determine the actual profitability, it is crucial to grasp the appropriate tax consequences before selling gold. The holding period affects the tax regulations for many kinds of gold, including sovereign gold bonds, gold ETFs, jewellery, gold coins, gold bars, and gold mutual funds.
The length of time that gold was kept affects the income tax on the selling revenues. Gold is recognised as a short-term gain if sold within three years of acquisition. On the other hand, it is seen as a long-term gain if it is sold after three years. We shall examine the income tax levied on long-term capital in this post.

Tax on LTCG from Gold Sales

With indexation advantages, the tax rate on long-term profits from selling actual gold is 20.8% (including cess). In other words, after accounting for inflation, the price of gold is modified. The sale of gold mutual funds or exchange-traded funds is subject to the same LTCG tax as the sale of natural gold.
Redeeming sovereign gold bonds results in tax-free capital gains. An indexation benefit is offered for long-term capital gains resulting from the transfer of bonds for any company. The tax on digital gold is the same as the tax on real gold, gold mutual funds, and gold exchange-traded funds (ETFs).

Exemptions from LTCG Tax on Gold Sale Proceeds

If the profits are reinvested in capital gain bonds specified under Section 54EC of the Income Tax Act of 1961, then the long-term capital gains (LTCG) on the sale of gold assets are free from taxation.
Within six months after the asset transfer, one must reinvest the profits in these bonds. The exemption must correspond to the amount of LTCG invested. The proportional gains would only be tax-exempt if the investment were less than the LTCG realised. A maximum of Rs. Fifty lakhs may be placed in these bonds per fiscal year.
Additionally, the Income Tax Act's Section 54F permits tax exemptions to be claimed from gold sales when the revenues are used toward residential real estate (subject to certain conditions).

Conclusion

The profits from selling capital assets, such as stocks and mutual funds, are subject to long-term capital gains tax. When you do this, the benefits are classified as part of the "pay" category for which you intend to charge in the year the increases are made. This paper aims to enhance the concept of the capital additions LTCG tax.
A venture's sale triggers a rise in capital charges. In fact, "capital resources" such as stocks, bonds, jewels, mint piece collections, and property are reliant upon capital addition fees. Long-term gains are weighted on benefits from resources kept for more than a year.

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FAQs-How to Calculate itcg from Gold

Do I have to pay taxes when I sell gold?

Yes. Gold's physical, digital, and paper forms are all capital assets. The holding time of three years is used to assess the gain. Capital gains must be calculated, and 20% tax must be paid on LTCG, with slab rates applied on STCG.

Which tax rate applies to the selling of gold ETFs?

Gold ETF is a capital asset like other ETFs and mutual funds. Gold ETFs held for less than three years are taxed at slab rates, while those held for three years or longer are subject to a 20% tax rate with indexation.

Are gold derivatives subject to the same taxation as gold itself?

No. The tax status of gold derivatives differs from that of actual gold since they are taxed as commodity derivatives. Profits from selling gold derivatives are taxed at slab rates and considered non-speculative company profits. The P&L and Balance Sheet must be created by the taxpayer and reported in ITR-3.

My parents left me gold. Does it need tax payment and ITR reporting?

According to Section 56(2) of the Income Tax Act, gold received as an inheritance is tax-free. Spouses, parents, and kids are all included in the definition of related. You don't have to pay tax, but you should declare it as Exempt Income on Schedule EI of the ITR.

At my wedding, I got gold as a present. Does it need tax payment and ITR reporting?

According to Section 56(2) of the Income Tax Act, gifts received from family are tax-exempt. Donations received from non-relatives that exceed INR 50,000 are subject to tax. However, any assistance given to celebrate a wedding is excluded from income tax. As a result, you may include it as exempt income in your ITR and avoid paying tax on it.

What are the various categories of capital gains-related taxable income?

Any profits from the sale of a capital asset during a fiscal year are subject to taxation under capital gains. Depending on how long the investment is kept, it may either be short-term or long-term profits.

Why are long-term and short-term capital gains divided into these categories?

The amount of due tax might change depending on the kind of gain. Long-term and short-term capital gains are distinguished to calculate the relevant tariff. Long-term and short-term capital gains are subject to different tax calculation procedures.

Is there an advantage to indexation in calculating the capital gain on a transfer of short-term capital assets?

Gains from short-term capital assets do not qualify for the indexation advantage; only profits from long-term investments do.

Should I pay taxes on the proceeds from selling a property I bought four years ago?

It counts as long-term capital gains if you sell a residence after four years of ownership. As a result, any profits derived from its sale are subject to capital gains tax.

How is capital gains tax on mutual funds computed in India?

Gains from selling assets in mutual funds are regarded as capital gains. Mutual fund capital gains are taxed as either short-term or long-term, depending on the investment period.

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