India revisits tax laws on gold funds and gold ETFs

MUMBAI (Scrap Monster): The Finance Ministry in India has proposed wide-ranging amendments to tax laws for gold ETFs and gold funds that fall under the non-equity mutual funds.

As per the new law, gold ETFs and gold funds will be charged long-term capital gains tax of 20% in place of the current 10%. In addition to doubling the long-term capital gains tax, the new tax regime also has increased the minimum holding period to qualify for long-term capital gains tax has been raised from 12 months to 36 months.

The new tax law takes due care of fluctuations in inflation, by allowing indexation benefits. By allowing these benefits, the capital gains could be reduced, which in turn may result in net tax impact of less than 20%. However, the investor should hold the gold funds or gold ETFs for at least 36 months in order to qualify for the 20% capital gains tax. If held for less than 36 months, they would be taxed according to investor’s tax slab.

Gold ETFs and funds don’t attract wealth tax unlike gold in the form of bars, coins and jewellery. However, holder of physical gold is liable to pay wealth tax at 1% of the total assets exceeding Rs 30 lakhs, held as on 31^st March.

The industry participants fear that the newly introduced tax laws may take away the advantage of gold funds and ETFs over physical gold.

According to Finance Ministry, the new tax laws will be applicable for units of gold funds and gold ETFs sold after July 10^th.