There’s now a tax-free way to earn gold returns. The Centre has made its pet scheme, the sovereign gold bond, exempt from capital gains tax at the time of redemption, in its recent Budget. Investments in gold in any other form — gold ETFs, gold funds, gold coins or jewellery — are subject to a capital gains tax of 20 per cent (with indexation benefit) after three years.
The sovereign gold bonds are not available on tap. They are usually offered for limited periods and the third tranche of gold bonds is opening on March 8, to close on March 14. Here, we look at the different options to invest in gold and pit the sovereign gold bonds against them.
However, do note that the price of ETF units depends on demand and supply factors. Many a time these units do trade at a discount to their NAV (net asset value). So, if you are selling your units at such a time, you may earn less than the actual gold returns. Gold funds are an option for those who don’t own a demat account. But you will have to cough up a fund management charge. On the taxation front, both are similar. If held for less than three years, capital gains are treated as short term and taxed at slab rates. ETFs and funds have to be held for three years for gains to be subject to long-term capital gains tax (20 per cent with indexation benefit).
Sovereign gold bond Sovereign gold bonds, after the Budget tweaks, offer advantages both over physical gold and gold funds. For one, there is an interest payment in these bonds. An interest of 2.75 per cent per annum will be paid on your initial investment. So, even in years where gold prices drop, the interest income will prop up your returns to some extent. Two, since there is sovereign guarantee, repayment of the bond is risk-free. Three, there is now no tax on these bonds with respect to capital gains at the time of redemption. But do note that this capital gains tax exemption is given only if you hold it to maturity. On exit prior to maturity, capital gains will be taxed. Parizad Sirwalla, Partner and Head, Global Mobility Services at KPMG, says, “If the gold bond is sold within three years of investment, capital gains will be taxed at normal slab rates. If sold after three years, capital gains on it will be taxed at 20 per cent with indexation benefit.”
Investment tenure for these bonds is eight years, but exit will be allowed from the fifth year onwards. The Centre lists these bonds on the bourses.
Trading cues The US has a light economic calendar this week with jobless claims data due on Thursday. Gold ended at $1,258.9/ounce on Friday, up about 3 per cent for the week despite strong jobs data. MCX gold and MCX silver futures too ended in the green, but gains were checked by the rupee gaining against the US dollar. This week, MCX gold may try moving further up, targeting ₹30,000-30,100 levels, provided the rupee doesn’t gain much against the greenback. Supports are at ₹29,500 and ₹29,000. MCX Silver may trade between ₹36,000 and ₹37,800.