We Indians hold gold in some form or the other. As per statistics by the World Gold Council (2019), households in India have stocked up gold weighing more than 25,000 tonnes. We also hold silver in the form of idols, utensils, coins and jewellery. But, did you know that there is an applicable sales tax on gold and silver by the state governments? 

Let’s understand the sales tax on gold and silver.

What Is The Sales Tax On Gold?

When purchasing gold coins or jewellery, the bill consists of three components: 

• Gold prices (per gram)
• Making charges
• Goods and Services Tax (GST). 

As of July 2022, the GST rate in India is 3% on the gold price and 5% on the making charges.

When selling gold jewellery, you need to consider:

• Short-Term Capital Gains (STCG) tax 
• Long-Term Capital Gains (LTCG) tax

The tax amount depends on how long you have held the gold. If sold within three years, STCG tax applies. If held for more than three years, LTCG tax at a rate of 20.8% (including cess) is applicable. However, purchasing gold allows for indexation benefits.

Can You Buy Gold Without Sales Tax? 

You can buy gold without GST and the making charges by investing in its dematerialised form. Four popular instruments can help you invest in dematerialised gold. Let's look at each of them in detail: 

Sovereign Gold Bonds (SGBs) 

• SGBs, or Sovereign Gold Bonds, are bonds with a fixed interest rate and an eight-year maturity period. In July 2022, they offer an annual interest rate of 2.5%.
• Investors can purchase SGBs in units that represent the value of one gram of 999 purity gold in India. These bonds can be held in multiple grams and converted into cash upon maturity.
• The interest earned from SGBs is added to the investor's income and taxed according to their income tax slab. However, if the investor remains invested until the bond matures, any profits obtained are tax-free.

Gold Exchange Traded Funds (ETFs) 

• Gold ETFs are a type of passively-managed mutual funds that track the price of the purest form of physical gold. The word ‘traded’ in its name suggests that these funds are traded on the stock exchanges like the Bombay Stocks Exchange (BSE) and the National Stock Exchange (NSE). 
• These investments are also free from the hassles of holding physical gold and can be easily redeemed at any time. 

Do you want to invest in gold ETFs? You can invest in any golf ETF scheme of your choice with the Fi money app. 

Other gold mutual funds 

• These funds can be Fund of Funds (FoFs), investing in other gold ETFs and mutual funds. 
• You can invest in these funds as per their Net Asset Value (NAV) and buy and redeem units without the hassles of physical gold. 
• Do you want to invest in a gold mutual fund through SIP (Systematic Investment Plan)? The Fi money app helps you quickly invest by setting up a SIP date and amount for your chosen gold mutual fund. 

Digital gold wallets 

• Just like you use and put money in a payment wallet, you can buy gold in a digital gold wallet. These are gold investments in the form of secured digital vaults. Here, you can purchase gold either in grams or units. 
• To buy these units, you can pay digitally through card, netbanking and payment wallets. 

Can You Buy Silver Without Sales Tax? 

• Silver as a commodity is now available for investing through ETFs as of September 2021 according to SEBI.
• Silver ETFs need to invest a minimum of 95 per cent of their assets in silver and silver-related securities.

To Conclude

The taxes paid on selling and purchasing commodities like gold and silver in physical form decreases their return on investment. You can invest in virtual gold instruments to undo these shortcomings.

Here's Fi - For All Your Investment Needs

Users can find several investment options on the Fi app. Be it short-term or long-term — it's easy to invest with a simple swipe of your phone's screen. Fi also offers a Peer-to-Peer investment feature called Jump! Jump can help you earn up to 9% p.a on your investment. But if you want to save up for a short-term goal & earn interest on it, select our super-flexible Smart Deposit. If you're looking for higher/stable returns, opt for a Fixed Deposit.

Frequently Asked Questions

1. Is there a tax on gold and silver?

Yes, when you buy gold, you pay taxes like GST on the gold value and the making charges. The same is the case for buying silver.  When you redeem these investments, you pay STCG and LTCG taxes based on the time you have held them. 

2. How is gold taxed when sold?

Yes, gold is taxed when sold in virtual or physical form. For instance, if you have held gold in coins and jewellery for less than 36 months, STCG tax will be applicable. Similarly, for physical units held for a longer period than 36 months, you will incur LTCG tax. 

3. Is silver tax-free? 

No commodity purchase is tax-free. On purchasing silver in physical form, you have to pay GST. Also, if you invest in a silver ETF, you will have to pay STCG or LTCG tax on redemption. 

4. Is capital gain applicable on sale of Jewellery?

This depends on how long you've owned the jewellery. If you own it for less than a year, the gain is taxed at an ordinary income rate. If you own the jewellery for a year or more, the profits made are taxed at the capital gains rate. You don't owe any capital fain if you incur a loss at sale.

5. How do you calculate gain on sale of gold?

To calculate gain on sale of gold:

1. Subtract the purchase price of the gold from the selling price.
2. Deduct any transaction fees or expenses incurred during the sale. This can also include making charges.
3. The resulting amount is the gain on sale of gold.

6. Does silver have GST?

Yes, Silver has a 3% GST rate in India currently.