Finance Minister Nirmala Sitharaman introduced substantial changes to the taxation of gold investments in the Union budget that was presented on Tuesday. The new budget reduces the Long Term Capital Gains (LTCG) tax on gold from 20% to 12.5% and shortens the holding period required for long-term status.
Key Changes in Gold Taxation
The revised budget stipulates that the holding period for gold to qualify for long-term capital gains has been reduced from 36 months to 24 months. This change aims to make gold investments more attractive by lowering the period required for favorable tax treatment.
Additionally, the benefit of indexation for calculating long-term capital gains on gold has been eliminated. Previously, indexation allowed investors to adjust the cost of acquisition for inflation, thus reducing taxable gains. This adjustment was calculated based on an inflation index that increased the initial cost price to offset inflationary impacts over time.
Under the new rules, investors will now benefit from a flat LTCG tax rate of 12.5% on gold sold after 24 months of holding, a notable reduction from the previous rate of 20%. Short-term capital gains, applicable to gold held for less than 24 months, will continue to be taxed at the existing income tax slab rates.
Changes in Tax Rates for Other Assets
The budget also announced an increase in tax rates across all financial and non-financial assets. The tax rate for both long-term and short-term capital gains has been adjusted, with long-term capital gains now taxed at 12.5%, up from the previous rate of 10%. Short-term capital gains tax rates have been raised from 15% to 20%.
These new tax rates will come into effect starting July 23, 2024.
Impact and Implications
The reduction in LTCG tax on gold investments is expected to stimulate the gold market by making long-term investments in gold more attractive. The removal of indexation benefits, however, could impact investors who previously relied on this adjustment to reduce their taxable gains.
The increase in tax rates on other financial and non-financial assets reflects the government’s broader fiscal strategy, potentially aimed at balancing the budget and addressing economic disparities.
