Sell ​​gold for cash? Know your short-term and long-term tax obligations

By CNBCTV18.com STI (Update)

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If the gold has been held for less than three years before being sold, the short-term capital gains tax kicks in. Find out more about this and also about the tax benefits of keeping your asset longer.

India is one of the biggest consumers of gold in the world. In the last year alone, Indians bought Rs 340,860 crore worth of gold. Gold is bought on birthdays, weddings, parties and especially during the end of year celebrations. With so much investment in gold, there are occasions when one may want to trade in their old jewelry to obtain funds for certain expenses. You can either sell your gold or pledge it to receive a loan.

The amount of money you receive for your gold depends on two things: the quality of the gold and the prevailing gold price for that quality. While 24k gold is 100% pure, 18k gold is only 75% gold.

However, exchanging your gold for silver should only be done with reputable companies. People should keep in mind that they still have to pay capital gains taxes when they sell their gold. Depending on how long they have held their gold, they may be subject to Short Term Capital Gains Tax (STCG) or Long Term Capital Gains Tax (LTCG).

Short term capital gains tax

If the gold has been held for less than three years before being sold, then the STCG comes into force, which is then applied only to the profit made and taxed according to the rate of the income tax slab under which the gold falls. particular.

For example, if the short term capital gain is Rs 6 lakh and the person falls in the 30% tax bracket, then he has to pay 31.20% tax on Rs 6 lakh, i.e. Rs 1 ,87,200. The gain or loss resulting from the sale of the asset is calculated by deducting the cost of purchase, the cost incurred for the improvement of the asset and the expenses incurred exclusively in connection with the sale from the proceeds of the sale. of the asset.

Long term capital gains tax

LTCG is calculated in a similar way, but purchase and upgrade costs are applied on an indexed basis instead. Long-term capital gains are taxed at the rate of 20.8% (this rate includes the 4% health and education contribution) with indexation.

Indexing is a technique used to calculate the cost of an asset based on the inflation index. This will increase the cost of the asset and reduce your earnings and therefore the tax payable. Also, the person who falls into the 30% tax bracket will pay a lower tax rate of 20%.

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