There has recently been new tax rules and changes introduced that significantly impact investors of Gold Exchange-Traded Funds (ETFs) and gold mutual funds. If you invest in these gold-based financial products, understanding the implications of the Tax on sale Gold ETFs & Gold Mutual Funds is crucial for smart portfolio planning and accurate ITR Filing.
Latest Capital Gains Tax Introduced
Before April 1, 2023, Gold ETFs and Gold Mutual Funds were classified as non-equity mutual funds. As a result, they attracted long term capital gains at 20% rate with indexation benefits if held for more than 36 months.
However, under the Finance Act 2023, effective April 1, 2023, the government has removed LTCG benefits for non-equity mutual funds, including Gold ETFs and Gold MFs.
Key Highlights of the New Capital Gains Tax Rule
- All gains from Gold ETFs and Gold MFs will now be taxed as Short-Term Capital Gains.
- All these gains will be also added to your total taxable income and you will need to pay taxes as per your income tax slab,
- The indexation benefits will no longer be available in these investments anymore.
How does the new rule affect you?
This new rule means that even if you hold your Gold ETFs or Gold MFs for several years, the tax on your profit will not enjoy the reduced 20% LTCG rate with indexation. Rather, your gains will be taxable similar to your salary or business income. Let’s understand through an example, suppose you earned ₹1 lakh profit from selling a Gold ETF you held for 4 years. Earlier, you would pay 20% tax on indexed gains (likely much less than ₹1 lakh). Now, if you’re in the 30% tax bracket, you’ll pay ₹30,000 in tax with no indexation benefits.
Tips for ITR Filing after New Capital Gains Tax Announced
Now, you must keep the following points in your mind before you do Income Tax Return Filing:
- Adding gold investment profits under “Income from Other Sources” or “Capital Gains” (short-term).
- Need to calculate taxes as per your applicable income slab.
- Must ensure proper documentation for purchase and sale dates, amounts and related expenses.
- Get advice from E-Startup India experts and learn more tips to save taxes.
Conclusion
In conclusion, you will need to pay more taxes on profits earned through Gold ETFs and Gold Mutual Funds. However, you can also consider discussing alternate investment avenues with a financial advisor from our team and updating your tax planning approach for the upcoming ITR Filing season.
For any further assistance or to get your doubts cleared, our experts are happy to be here to help you. Call us: 8881-069-069.
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