I’m planning to invest in gold ETFs and would like to understand their tax implications. How are gold ETFs taxed in terms of short-term and long-term capital gains? Are they taxed similarly to debt funds? Also, are there any other benefits of investing in gold ETFs compared to physical gold or SGBs?
Are gold ETFs taxed similar to debt funds? Is it a better option compared to physical gold and SGBs?
Not just you, there are many people considering Gold ETFs these days. They are an alternative to other gold investments like physical gold and SGBs.
Gold ETFs (Exchange Traded Funds) let you invest in gold digitally.
- Each unit represents a fraction of gold.
- You can buy/sell these units on stock exchanges, just like shares.
When it comes to physical gold, storage and security are major concerns, which you don’t have to worry about with Gold ETFs.
As for SGBs, the government hasn’t announced any recent issuances, limiting their availability. Gold ETFs, on the other hand, remain easily accessible throughout the year.
Gold ETFs were previously taxed similarly to debt funds, meaning the gains were taxed at slab rates irrespective of the holding period. However, the taxation rules have changed after the amendments introduced in Budget 2024.
Now, the tax treatment for Gold ETFs is almost aligned with listed stocks and equity mutual funds. Here’s how they will be taxed:
*New rates will come into effect from April 1, 2025
Just remember, there might be a few limitations too.
Liquidity challenges: Gold ETFs don’t trade as often as popular stocks, so it might become difficult to sell immediately.
Tracking error: Gold ETFs aim to match gold prices but often fall short. For example, if gold prices rise by 12% annually, your ETF might deliver 11.5% instead.
Costs: Gold ETFs come with expense ratios, brokerage fees, and transaction costs that will dilute some part of your returns.