Latest Update: Budget 2024 has reduced the holding period for capital gains on gold to qualify as long term capital gains from 36 months to 24 months and simultaneously cut the LTCG tax rate to 12.5%. Further, indexation available for LTCG calculation for gold has been removed.
Taxation for Silver Investments
The Union Budget 2024 introduced a simplified and favorable tax structure for investments in silver ETFs (Exchange Traded Funds) and FoFs (Fund of Funds). Here are the key changes:
Taxation for Fresh Purchases (On or After April 1, 2023):
Long-Term Capital Gains (LTCG):
- For silver ETFs, if the holding period is more than 12 months, the gains will be taxed at a flat rate of 12.5% (plus applicable surcharge and cess).
- For silver ETF FoFs, if the holding period is more than 24 months, the gains will be taxed at a flat rate of 12.5% (plus applicable surcharge and cess).
Short-Term Capital Gains (STCG):
(i) Silver ETFs:
- Holding Period: Gains from silver ETFs held for 12 months or less are now taxed at a flat rate of 20%, effective from July 23, 2024.
(ii) Silver ETF FoFs:
- Holding Period: Gains from silver ETF FoFs held for 24 months or less are also taxed at a flat rate of 20%, effective from July 23, 2024.
Taxation for Existing Holders (Purchased Before April 1, 2023):
- Existing holders of silver ETFs and FoFs can also benefit from the new tax regime if they redeem their units after July 23, 2024.
- For ETFs, if the holding period is more than 12 months, the gains will be taxed at 12.5%.
- For FoFs, if the holding period is more than 24 months, the gains will be taxed at 12.5%.
Goods and Services Tax (GST) on Silver
GST applies to the supply and manufacturing of silver ornaments. The current GST rate on silver is 3%, with an additional 18% GST on making charges for jewelry.
Export Exemption: To boost exports, the GST council has exempted GST on the export of gold, silver, and platinum.
Example: Nitya buys silver worth ₹500, paying 3% GST (₹15), bringing the total to ₹515. If he sells the silver after seven months without any price change, she receives only ₹500, as GST is not applicable at the consumer level during resale.
Different Ways to Invest in Silver
Silver is often considered a more accessible and practical investment for long-term investors, as its value appreciates over time. If you’re looking to invest in this precious metal, here are some popular ways to do so:
Silver Jewellery
Investing in silver jewelry is not just about adornment; it’s also a way to own tangible assets. However, it’s crucial to ensure you’re buying high-quality silver. Look for the 925 hallmark, which indicates 92.5% purity (sterling silver).
Silver Coins or Bars (Bullion)
For those who prefer a straightforward approach, silver coins or bars are an excellent choice. These can be purchased from banks or authorized dealers. The advantage? You avoid the additional costs of making charges, making it a cost-effective way to invest.
E-Silver
This digital form of silver eliminates the hassles of physical storage and making charges, offering a convenient and efficient investment option.
Silver ETFs
Silver Exchange Traded Funds (ETFs) are another popular way to invest. These funds allocate at least 95% of their assets to physical silver or silver-linked instruments. The Net Asset Value (NAV) of these ETFs fluctuates based on the current market price of silver, making them a flexible and liquid investment option.
Additional Investment Options:
- Digital Silver: Some online platforms offer digital silver investments, allowing investors to buy and sell electronically without physical possession.
- Silver Futures: Investors can trade silver futures contracts on commodity exchanges like MCX, but this carries higher risk and requires market expertise.
How Silver ETFs Work
Silver Exchange Traded Funds (ETFs) are designed to track the spot price of silver in the open market. This means that any fluctuations in silver prices directly affect the Net Asset Value (NAV) of these funds.
To ensure transparency and security, fund managers of silver ETFs store physical silver in standard 30 kg bars with 99.9% purity, as per SEBI regulations. . They are also required to provide auditor reports to verify the authenticity and quantity of the silver held. These ETFs are regulated by SEBI (Securities and Exchange Board of India), ensuring compliance and investor protection.
While silver holds cultural and sentimental value, understanding its tax implications—whether on ornaments, ETFs, or GST—can help you make informed financial decisions. Get expert CA assistance online now!
