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Should you reconsider your investment in GOLD post Budget 2024?

“Gold’ is favorite of many! Gold is mainly used for consumption & hedging!

Since last few years, gold prices have risen steadily which made gold investors happy!

In the budget 2024, Gold saw two major provisions related to customs duty & Capital gain taxation.

 

What are the provisions related to Gold in the Budget 2024?

  1. Customs Duty on Gold is now reduced to 6%.
  2. There are changes in the ‘Capital Gain Tax rates & Holding period’ for different options of gold investments.

What is capital gain taxation?

As per the Income tax act 1961, when we sale any investment made in the capital asset & if we incur any gain, then it is counted as ‘Capital gain’. The tax we need to pay on this gain is counted as ‘Capital gains tax’.

Gold investments come under capital gain tax.

 

Decoding the updated rates for Capital gain tax on investment in Gold:

There are few important changes made about capital gain tax structure for investment in gld. It is now simplified in terms of rates & tenure.

Kindly refer the below table for the same-

 

PARTICULARSSHORT TERM CAPITAL GAINLONG TERM CAPITAL GAINSHORT TERM CAPITAL GAINLONG TERM CAPITAL GAIN
 BEFORE BUDGET 2024AFTER BUDGET 2024
 HOLDING PERIODTAX RATEHOLDING PERIODTAX RATEHOLDING PERIODTAX RATEHOLDING PERIODTAX RATE
Physical Gold24 months or lessAs per tax slab24 months or more20% with indexation24 months or lessAs per tax slab24 months or more12.50%
Gold Mutual Funds (Bought before 01/04/2023)36 months or lessAs per tax slab36 months or more20% with indexation24 months or lessAs per tax slab24 months or more12.50%
Gold Mutual Funds (Bought after 01/04/2023)N/AAs per tax slabN/AAs per tax slab24 months or lessAs per tax slab24 months or more12.50%
Gold ETF (Bought before 01/04/2023)36 months or lessAs per tax slab36 months or more20% with indexation12 months or lessAs per tax slab12 months or more12.50%
Gold ETF (Bought after 01/04/2023)N/AAs per tax slabN/AAs per tax slab12 months or lessAs per tax slab12 months or more12.50%
Sovereign Gold Bonds

(If sold in secondary market)

36 months or lessAs per tax slab36 months or more20% with indexation12 months or lessAs per tax slab12 months or more12.50%
Sovereign gold bonds if held till maturity, then they remain tax free

 

As per the above table, we can locate the updated tax rates now for these four main categories of investments in gold.

 

What is the likely impact of these changes depicted in these two provisions?

  1. Due to changes in the customs duty, gold prices saw a fall. As the cost is now reduced in terms of customs duty, the prices shown the impact.
  2. Due to change in the capital gain taxation, following is the impact-
  • This change in the tenure of the holding period for STCG & LTCG is now simplified.
  • Tax rates are now uniform for short & long term.

 

 

What should you consider while investing in Gold?

 

  1. Don’t invest with ‘Only tax planning’ in mind:

Some people consider investing in gold for tax diversification. Now, with some uniformity in terms of rate of taxes in the long term, you should nt consider only this while investing.

  1. Have diversification on mind:

There are thumb rules which talk about ‘ideal share of gold investment in the total portfolio’. One can refer them but have your own diversification set as per the asset allocation you have decided for your portfolio.

  1. Set your Purpose & Goal for investment in Gold:

Investing in gold with a set goal & purpose is always better. It gives discipline, focus & clarity in our approach for gold investment.

Our goal also helps us to short list & select suitable way & option for investment in Gold.

  1. Risk spread & Hedging:

Gold investment helps in ‘spreading the risk’ in the total portfolio. It does hedge against uncertainty & volatility in the market.

 

Should you reconsider your investment in Gold post Budget 2024?

Well, changes in taxation are well understood now. Such changes in the policies, taxations are part & parcel of the investing journey.

I would say, it is better to stick to our asset allocation, review our investments to rebalance it at regular intervals.

Making any changes in our portfolio hastily in response to such changes like budget provisions; can harm the potential growth of the total portfolio.

 

 

 

 

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