How To Avoid Capital Gains Tax on Gold?

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Gold has always been considered a secure form of investment for astute investors due to its potential for generating higher returns. Gold is a metal that stands the test of time and is a reliable store of value. However, just like investment in any other asset, knowing about the tax implication is crucial for optimizing the total amount of gains.

One type of tax that can take away a significant share of your profit is Capital Gains Tax. But you need not worry; this article will focus on the various strategies to avoid capital gains tax when it concerns your precious holdings of gold.

Capital Gains Tax Meaning:

Capital Gains Tax is a kind of tax typically levied on the gain or profit received from the disposal or sale of certain assets, commonly referred to as capital assets. This can include several types of investment, including bonds, stocks, real estate, as well as other valuable commodities like gold.

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How Is Capital Gains Tax Imposed?

Capital Gains Tax is imposed on the total gain or profit realized from disposing or selling an asset and not on the total sale amount. The tax rate applied to capital gains may vary based on various factors such as the kind of asset, the total period for which the asset was held, and the individual's tax bracket. The rates of Capital Gains Tax usually differ for long-term and short-term gains.

Types of Capital Gains Tax:

Every individual must know two common types of capital gains tax, they are:

  • Short-Term Capital Gains Tax:

    Short-term capital gains tax typically applies to the profits received against the sale of assets not held for more than one year. The tax rates of short-term capital gains tax are usually higher than those of long-term capital gains tax.
  • Long-Term Capital Gains Tax:

    Long-term capital gains tax typically applies to the profits received against the sale of assets held for more than a year. The tax rates are usually lower in this regard offering long-term investors advantages on tax for holding their assets for an extended period.

Strategies To Avoid Capital Gains Tax On Gold:

There are various ways by adopting which you can avoid capital gains tax on gold. Some common strategies are given below in detail:

  • Claiming A Tax Exemption:

    Section 54F of the ITA (Income Tax Act) allows tax exceptions on capital gains received from the sale of capital assets, including bonds, shares, and gold, if the profits are further invested in buying a house within two years after the sale. Tax exemptions are also applicable if one uses the gain for constructing a house within the time of three years from the sale of the asset.
  • Engaging In Government Bond Investment:

    One way to waive the capital gains tax is by investing the gain or the profit from selling the gold in a few particular bonds and claiming tax exemptions within 6 months from the selling date . Such investments must be made in relevant capital gains bonds that offer benefits of taxes, such as 54EC bonds, REC bonds, and bonds of the National Highway Authority of India.
  • Going For Gold Loans:

    If you are looking for short-term funds, you can easily avoid paying tax on selling your gold asset by taking a gold loan. This is the most convenient option, where one can borrow funds by keeping gold in the form of coins or jewelry as collateral.
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Therefore, multiple ways exist to avoid capital gains tax on the profit earned by selling gold assets. Adopting these strategies will help you make the most out of your valuable assets and save more from your hard-earned money.