Selling gold can be a bittersweet moment. On one hand, you’re cashing in on an asset that might have significantly appreciated over the years. On the other hand, you’re faced with the inevitable question: how much tax do I need to pay? The thought of dealing with taxes can make even the most seasoned investor uneasy. And let’s be honest—understanding long term capital gains tax (LTCG) on gold can feel like diving into a maze of rules, exemptions, and confusing terms.
But worry not! At Paisaseekho, we’re here to make the world of finance simple for you. Whether you’ve recently sold gold jewellery or are planning to offload some family heirlooms, it’s crucial to know how much tax liability you’ll incur. Let’s break it down step-by-step, so you can walk away with more clarity (and less stress) about how long-term capital gains (LTCG) on gold are taxed.
What is CGT or Capital Gains Tax?
Capital Gains Tax (CGT) is the tax levied on the profit you make from selling a capital asset, such as gold, real estate, or stocks. Simply put, if you sell an asset for more than what you originally paid for it, the difference is called a capital gain, and you’re liable to pay tax on this profit.
In India, capital gains are categorised into two types: short-term and long-term, based on the duration for which you hold the asset. For gold, if you hold it for more than three years (36 months) before selling, the profit qualifies as long-term capital gain (LTCG). On the other hand, if you sell gold within three years of purchasing it, the profit is treated as short-term capital gain (STCG).
The tax rate for LTCG is generally lower compared to STCG, and you can also benefit from indexation, which helps adjust the purchase cost of gold for inflation. This ultimately reduces your tax liability. Understanding CGT is crucial for anyone looking to sell gold, as it can significantly impact how much you actually get to keep from the sale proceeds.
Capital Gains Tax Types
| Type of Capital Gain | Holding Period | Tax Rate |
| Short-Term Capital Gain (STCG) | Less than 36 months | As per individual income tax slab rate |
| Long-Term Capital Gain (LTCG) | More than 36 months | 20% with indexation benefit |
What Amounts Are Considered Long-Term Capital Increases?
When you sell gold after holding it for more than three years (36 months), any profit made from the sale is classified as a long-term capital gain (LTCG). LTCG on gold is subject to a 20% tax rate with the added benefit of indexation.
Indexation is an important factor in determining the actual taxable amount. It helps adjust the purchase price of gold to account for inflation over the period of holding, effectively reducing your taxable capital gains. For instance, if you bought gold in 2015 and sold it in 2024, indexation would increase the purchase price to reflect inflation, thus lowering the overall gain and reducing the tax liability.
It’s also worth noting that capital gains are not just applicable to physical gold, but also to gold-related investments such as gold ETFs, gold mutual funds, and sovereign gold bonds. If these are held for more than three years, any gains are treated as LTCG and taxed accordingly.
Understanding which amounts are considered long-term capital increases can help you plan your investments and decide the best time to sell gold in order to optimise your tax liabilities.
How Can LTCG Tax Be Calculated from The Sale of Gold?
Calculating the long-term capital gains (LTCG) tax on the sale of gold involves several steps. Here’s a simple breakdown of how you can calculate the tax liability:
- Determine the Sale Price: Start by determining the sale price of the gold. This is the total amount you received when you sold the gold.
- Calculate the Indexed Cost of Acquisition: To determine your LTCG, you need to calculate the indexed cost of acquisition. Indexation adjusts the purchase price of the gold for inflation, which helps reduce your tax liability. The formula for calculating the indexed cost is:
Indexed Cost of Acquisition = Purchase Price x (CII of Year of Sale / CII of Year of Purchase)
Here, CII stands for Cost Inflation Index, which is published by the government each year. - Calculate Long-Term Capital Gain: Subtract the indexed cost of acquisition from the sale price to arrive at the long-term capital gain.
LTCG = Sale Price – Indexed Cost of Acquisition - Apply the Tax Rate: LTCG on gold is taxed at 20% with the benefit of indexation. Additionally, a cess of 4% is applied to the tax amount.
Tax Payable = LTCG x 20% + 4% Cess
For example, let’s say you bought gold for ₹5,00,000 in 2015 and sold it for ₹10,00,000 in 2024. The CII for 2015 was 254, and for 2024, it is 363.
- Indexed Cost of Acquisition = ₹5,00,000 x (363 / 254) = ₹7,14,173
- LTCG = ₹10,00,000 – ₹7,14,173 = ₹2,85,827
- Tax Payable = ₹2,85,827 x 20% = ₹57,165.4
- Cess (4%) = ₹57,165.4 x 4% = ₹2,286.62
- Total Tax Payable = ₹57,165.4 + ₹2,286.62 = ₹59,452.02
Tax on LTCG from Gold Sales
When you sell gold after holding it for more than three years, the gains are treated as long-term capital gains (LTCG) and are taxed at a flat rate of 20% with the benefit of indexation. Indexation helps in adjusting the cost of acquisition to account for inflation, thus reducing the taxable gains and the tax liability.
In addition to the 20% tax rate, a cess of 4% is also applicable on the tax amount. This cess is used for health and education initiatives by the government.
It’s important to note that if you are selling physical gold, gold ETFs, gold mutual funds, or sovereign gold bonds, the LTCG tax rate remains the same. However, you can also explore exemptions under certain sections of the Income Tax Act, such as Section 54F, if you reinvest the proceeds in specific assets like residential property.
Planning ahead and understanding the tax implications can help you optimise your tax outgo when selling gold. At Paisaseekho, we encourage you to make informed decisions to minimise your tax burden and maximise your financial gains.
LTCG on Gold Calculator
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Tax Exemptions from LTCG on Gold Sale Proceeds
If you’re looking to reduce your tax liability after selling gold, there are certain exemptions available under the Income Tax Act. Here are some key exemptions that you can explore:
- Section 54F: If you use the proceeds from the sale of gold to purchase a residential property, you can claim an exemption under Section 54F of the Income Tax Act. This exemption is available if the entire sale consideration is invested in the purchase or construction of a new residential property within a specified time frame.
- Section 54EC: You can also claim an exemption by investing in capital gains bonds issued by entities like NHAI or REC. These bonds have a lock-in period of 5 years and offer tax-saving benefits. The maximum amount that can be invested in these bonds is ₹50 lakh in a financial year.
- Capital Gains Account Scheme (CGAS): If you’re not able to invest the sale proceeds immediately, you can deposit the amount in a Capital Gains Account Scheme (CGAS). This allows you to temporarily park the funds until you’re ready to invest in a residential property or other eligible investments.
These exemptions can significantly reduce your tax liability, allowing you to keep more of the profits from your gold sale. It’s important to understand the conditions and timelines associated with these exemptions to make the most of them.
The Requirements for Inherited Securities
If you’ve inherited gold or gold-related securities, the tax treatment can be slightly different. Here’s what you need to know:
- No Tax on Inheritance: There is no tax on the inheritance of gold or gold-related securities. However, when you decide to sell the inherited gold, capital gains tax will be applicable.
- Cost of Acquisition: For calculating capital gains, the cost of acquisition will be the same as the cost incurred by the original owner. Additionally, the holding period of the original owner is also considered. This means that if your parent bought gold in 2000 and you inherited it in 2024, the holding period would start from 2000, making it a long-term capital asset.
- Indexation Benefit: You are eligible to claim the indexation benefit based on the year when the original owner acquired the asset. This can significantly reduce your tax liability, as it helps adjust the cost of acquisition for inflation over the holding period.
Understanding these requirements can help you make informed decisions about when to sell inherited gold and how to minimise your tax liability. At Paisaseekho, we believe that knowledge is power, and having a clear understanding of these rules can help you preserve more of your wealth.
ITR Disclosure of Capital Gains
When you have earned capital gains from the sale of gold, it is important to correctly disclose them while filing your Income Tax Return (ITR). Here’s how you should disclose capital gains from the sale of gold in your ITR:
- Choose the Correct ITR Form: Use ITR-2 if you have long-term capital gains but do not have business income. If you have business income, use ITR-3.
- Provide Capital Gains Details: Report the details of the sale of gold under the Capital Gains section of the ITR. Include information such as sale price, purchase price, date of acquisition, date of sale, and the indexed cost of acquisition.
- Claim Indexation Benefit: If you are eligible for the indexation benefit, ensure that you provide the indexed cost of acquisition to reduce your taxable gains.
- Disclose Exemptions: If you have reinvested the sale proceeds in eligible assets and are claiming exemptions under Section 54F or Section 54EC, provide all relevant details to support your claim.
- Pay Advance Tax: If your capital gains result in significant tax liability, you may need to pay advance tax to avoid penalties. Ensure that any advance tax payments are accurately reported in your ITR.
Conclusion
Selling gold can be financially rewarding, especially if it has appreciated significantly over time. However, it is essential to understand the tax implications to ensure compliance with the law and minimise your tax liability. Long-term capital gains (LTCG) on the sale of gold are taxed at 20% with the benefit of indexation, making it possible to reduce the taxable amount through adjustments for inflation.
At Paisaseekho, we encourage you to stay informed about the various exemptions and tax-saving strategies available. By planning your sale carefully and making use of available exemptions under the Income Tax Act, you can optimise your finances and keep more of your hard-earned money.
FAQs
- What is long-term capital gains tax (LTCG) on gold?
Long-term capital gains tax (LTCG) on gold is the tax levied on the profit made from selling gold held for more than three years. It is taxed at a flat rate of 20% with the benefit of indexation to adjust for inflation.
- What is indexation, and how does it help in reducing LTCG tax?
Indexation is a method of adjusting the purchase price of an asset to account for inflation over the holding period. By using the Cost Inflation Index (CII), you can increase the purchase cost, thereby reducing the taxable capital gain and the resulting tax liability.
- How is long-term capital gain (LTCG) on gold calculated?
LTCG on gold is calculated by subtracting the indexed cost of acquisition from the sale price. The resulting gain is then taxed at 20%, with an additional 4% cess applied to the tax amount.
- Are there any exemptions available for LTCG on gold?
Yes, there are exemptions available under sections 54F and 54EC of the Income Tax Act. You can claim exemptions by reinvesting the sale proceeds in a residential property or by investing in capital gains bonds.
- Is there any tax on inherited gold?
There is no tax on inheriting gold. However, when you sell the inherited gold, you need to pay capital gains tax based on the cost of acquisition and the holding period of the original owner.
- What ITR form should I use to disclose LTCG from gold?
You should use ITR-2 to disclose long-term capital gains from the sale of gold if you do not have any business income. If you have business income as well, you may need to use ITR-3.
- What is the Cost Inflation Index (CII), and where can I find it?
The Cost Inflation Index (CII) is a number used to calculate the indexed cost of acquisition for capital assets. The CII is published by the government each year, and it helps adjust the cost of the asset for inflation.
- Can I save LTCG tax by reinvesting in residential property?
Yes, you can save LTCG tax by reinvesting the sale proceeds in a residential property under Section 54F of the Income Tax Act. The exemption is available if the entire sale consideration is invested in a new property within the specified time frame.
- What are capital gains bonds, and how do they help in reducing LTCG tax?
Capital gains bonds are issued by entities like NHAI and REC.
By investing in these bonds under Section 54EC, you can claim an exemption on LTCG up to ₹50 lakh in a financial year. The bonds have a lock-in period of 5 years.
- Is advance tax applicable on LTCG from the sale of gold?
Yes, if the capital gains result in significant tax liability, you are required to pay advance tax to avoid interest penalties. It is important to ensure that any advance tax payments are accurately reflected in your ITR.
