Tax Implications on NRI Gold Investment

How Can the NRIs Invest in Gold?

For NRIs, gold remains a valuable investment option, offering stability and returns. While gold is a great investment option for NRIs in India, it is important to learn about the various investment options for gold available in India. Here’s how NRIs can invest in gold in India -

Physical Gold

Gold jewelry holds cultural significance in India and is often bought and gifted during family occasions. Even though gold investment in physical form is attractive, it has some drawbacks. For example, people might not sell it even when the price goes high. The overall cost of physical gold also includes making and melting charges, which means physical gold costs more than digital gold.

Gold Bullion Coins

These coins, available in denominations from 2.5g to 50g, come with 24-karat purity certification. It does away with the cost drawback of physical gold. NRIs should buy physical gold from jewelers instead of banks as they can sell it back to jewelers but not banks.

Gold Investment in Paper Form for NRIs

• Gold ETFs - Gold ETFs are mutual funds that invest in gold and derive value from them. NRIs need a PINS account to invest in gold ETFs in India and trade on the stock exchange and must buy or sell in multiples of 1,000 units. Gold ETFs allow you to invest in gold in dematerialized form. One unit of gold ETF is backed by 1 gram of physical gold with 99.5% purity. Gold ETFs can be listed and traded on the NSE and BSE like a stock of a company.
• E-Gold - E-gold or digital gold allows individuals to purchase gold in digital form. Every investment is backed by an investment in 24-karat physical gold. These investments can be traded on the NSEL. For this, you need a demat account with a registered brokerage firm to invest in them. Investors can buy and store them in a demat form. They can also redeem digital gold to get delivery of physical gold.
• Sovereign Gold Bonds - Over the years, the market has witnessed a decline in demand for physical gold. These SGBs can be bought only through a SEBI-authorized agent or broker. Once the bond is redeemed, the corpus is deposited in the bank account. These government-backed bonds offer 2.5% annual interest, but NRIs are not allowed to purchase SGB. However, if the SGB is purchased before becoming an NRI, they can hold them until maturity.
• Gold Funds - Gold funds invest in gold mining and production companies, similar to mutual funds, providing an alternative way to gain exposure to gold prices.

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Taxation of NRI Gold Investment

• Tax on Physical Gold - Physical gold in India includes gold ornaments, jewelry, gold biscuits, and gold coins. The tax rate on the sale of physical gold after holding it for 24 months or more is 12.5%, and in the case of short-term capital gains, the gold is taxed at slab rates. The LTCG upto Rs.1.25 lakh is exempt from tax.
• Tax on Paper Gold - NRIs trading Gold ETFs through the exchange are not subject to TDS. However, TDS applies if redeemed directly with the fund house. The tax on The tax rate on paper gold is similar to the tax on physical gold. If the paper gold is sold after holding for 24 months, a tax rate of 12.5% is applicable. Moreover, LTCG upto Rs.1.25 lakhs are exempt from tax.
• Income Tax on Digital Gold - Digital gold in India is not regulated by RBI or SEBI. If the gold is held for more than 24 months, the returns from it are considered long-term capital gains, and assets held for a period of less than 24 months are considered short-term capital gains. The tax rate on the sale of digital gold is 12.5%, which is the same as physical gold and paper gold. However, in the case of STCG, the tax is charged on the slab rate.
• Income Tax on Gold Received as a Gift or Inheritance - As per section 56(2) of the Income Tax Act, parents, spouses, or children gifting golden ornaments are not liable for income tax. If you receive it from anay other person apart from relatives and the amount exceeds Rs.50,000, then, such amount is subject to tax under the head Income from other sources. However, if this gold if this gold is sold by the recipient after holding for 24 months or more, then it will be taxed at 12.5% and if it is sold after holding for 24 months or less, then it will be taxed at the slab rate.

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How can NRIs Save Tax?

Tax Considerations for NRI Gold Investment

• Export & Import Duties: While there are no export duties on carrying gold out of India, import duties may apply in the country of residence. NRIs should check local laws regarding gold sales and tax implications.
• Offsetting Capital Gains: Capital gains from selling gold can be offset against tax liabilities from other asset sales (shares, mutual funds, etc.). Long-term capital gains can be offset only against other capital gains, while short-term gains can be offset against both short- and long-term capital gains.
• Tax Exemptions: NRIs can claim exemptions under Section 54EC by investing in Capital Gains Tax Savings Bonds. It's essential to review local tax laws when planning taxes.

Income Tax Rules on Gold for NRIs

Income Tax Act allows the NRIs or Non Resident Indians to invest in physical gold, paper gold and digital gold. However, NRIs are not allowed to invest in Soverreign Gold Bonds (SGBs) as per RBI and FEMA regulations. Even though the tax rate on gold sales for NRIs is the same as Indian residents, they have to pay TDS on mutual fund redemptions and gold ETFs. In the case of short-term returns from gold ETFs.

Short-term gains from Gold ETFs (held for less than 36 months) are taxed at slab rates, while long-term gains are taxed at a flat 20%. However, this rule applies only until March 31, 2023. The Finance Act 2023 amended this, making all gains from Gold ETFs taxable as short-term starting April 1, 2023.

Are you an NRI looking to save tax on your gold investment or are need help planning your gold investments in India? Don’t worry! Our tax experts are here to help you every step if the way. From effective tax planning to accurate tax-filing, Tax2win has got you covered. All you have to do is book an eCA from Tax2win and experience a hassle-free tax journey. Book an Online CA Now!

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