To What limit can you hold Gold at Home-Taxation on Sale of Gold

Why people prefer to Invest in Gold

Gold has been a popular investment in India for ages. There are various reasons why people, especially Indians, invest in gold to meet their financial goals. Here are some of the reasons why gold is a preferred investment option in India:

Gold is considered auspicious:

Gold is considered a symbol of wealth and prosperity in India. It is often bought during festivals, weddings, and other auspicious occasions.

Gold is considered as hedge against inflation:

Gold is a good hedge against inflation as its value tends to rise when the cost-of-living increases. In India, where inflation rates have been high in the past, gold has been a popular investment option.

Some other reasons for investment in gold are

• that Gold is commonly acceptable as collateral for loans;
• during times of economic uncertainty where the economy is often volatile, gold is a popular investment option;
• Gold is a status symbol: Gold is often seen as a status symbol in India. It is often bought as a display of wealth and social status;
• Diversification of Portfolio: Gold can play a role in diversifying an investment portfolio, providing a balance against more volatile asset classes like stocks and bonds.
• Gold is universally recognized and accepted as a valuable asset, making it easily tradable and transportable across borders.

What is limit to hold gold for an individual in India

According to the Central Board of Direct Taxes (CBDT), there is no limit on the amount of gold jewelry or ornaments that an Indian citizen can hold, provided that they can explain the source of income that allowed them to invest in gold. However, it is essential that the income of the assessee is in line with the quantity of gold held failing which, in case of Scrutiny by Income Tax, you may have to undergo a complex process of explaining to Income tax Officer to explain sources to buy gold.

It’s important to note that the government is said to be mulling a plan to put a limit on the amount of unaccounted gold one can hold. Which means that while you can hold any quantity of gold, but you would be required to justify the sources of income to accumulate such quantity of good.  

The limits for holding gold jewelry and ornaments without showing any proof  or source of funds are as follows:

• Married woman: Up to 500 grams of gold
• Unmarried woman: 250 grams of gold
• Men: Only 100 grams of gold

Limit of Gold that can be brought in OR taken out of India

There are certain restrictions on the amount of gold that can be brought into or taken out of India.

Importing Gold:

Non-Resident Indians (NRIs): NRIs can bring in up to 10 kg of gold into India without paying any customs duty. However, they must declare the gold to customs authorities upon arrival.

Resident Indians: Resident Indians can bring in up to 50,000 INR worth of gold per person without paying any customs duty. However, they must declare the gold to customs authorities upon arrival.

Export of Gold by Resident Indians and Non-Resident Indians:

Non-Resident Indians (NRIs): NRIs can export an unlimited amount of gold from India. However, they must declare the gold to customs authorities upon departure.

Resident Indians: Resident Indians can export up to 10,000 INR worth of gold per person per year without obtaining a license from the Reserve Bank of India (RBI). However, they must declare the gold to customs authorities upon departure.

Long term capital gains on sale of gold

The capital gains tax (CGT) rules governing the sale of gold in India are as follows:

Capital Gains on sale of Physical Gold:

Long-term capital gains (LTCG): If you sell physical gold that you have held for more than three years, you will be subject to LTCG tax at a rate of 20%. However, you can reduce your taxable gain by indexing the cost basis for inflation. The indexed cost basis is calculated by multiplying the original cost of the gold by the Cost Inflation Index (CII) for the year of sale.

Short-term capital gains (STCG): If you sell physical gold that you have held for three years or less, you will be subject to STCG tax and included in your other income subject to Income Tax at taxed asper regular slab rates as applicable to you. The STCG tax rates range from 5% to 42.75%, depending on your income slab.

Gold Exchange Traded Funds (ETFs) and Gold Mutual Funds:

LTCG: If you sell units of a gold ETF or gold mutual fund that you have held for more than one year, you will be subject to LTCG tax at a rate of 10%. However, you can reduce your taxable gain by indexing the cost basis for inflation.

STCG: If you sell units of a gold ETF or gold mutual fund that you have held for one year or less, you will be subject to STCG tax at your regular income tax rate. The STCG tax rates range from 5% to 42.75%, depending on your income slab.

Other Considerations that determine the tax liability of sale of Gold:

Cost of acquisition:

Your cost basis for gold is generally the amount you paid for it, plus any additional costs you incurred, such as brokerage fees and sales taxes.

Basis of sale:

Your basis of sale for gold is generally the fair market value of the gold on the date of sale.

Tax Planning Tips to minimize the tax liability on account of Gold:

To reduce your Capital Gains Tax liability from the sale of gold, you can consider the following tax planning tips:

1. Hold your gold for more than three years: This will convert your Short term Capital Gains (STCG) into LTCG, which is taxed at a lower rate.
2. Gift gold to family members: You can gift gold to family members who are in a lower tax bracket to reduce your overall CGT liability.
3. Invest in gold ETFs or gold mutual funds: These instruments offer the potential for capital appreciation and are taxed at a lower LTCG rate compared to physical gold.