Conversion of physical gold to EGR not to attract capital gains tax

The Finance Minister of India - Mrs Nirmala Sitharaman - announced during the budget speech of 2023 that conversion of physical gold into electronic gold receipt will not attract capital gains tax from FY 2023-24.

Tax relief on Gold Conversion

If physical gold is converted into an Electronic Gold Receipt (EGR) or vice-versa, no capital gains tax will be levied by the government. This announcement was made by the Finance Minister of India - Mrs Nirmala Sitharaman - during the presentation of the Union Budget 2023 on the 1st of February.

The Finance Minister of India, during her budget speech, stated, “it is proposed to exclude the conversion of physical gold into EGR, and vice versa by a Securities and Exchange Board of India (SEBI) registered Vault Manager from the purview of ‘transfer’ for the purpose of capital gains.”

It means that if you decide to convert your physical gold (in the form of jewellery or bar) into an EGR, you won’t have to pay capital gains tax to the government. As per the Finance Minister of India, this move was proposed to encourage people to invest in the electronic form of gold.

Also Read: Should You Buy Digital Gold?

What are Electronic Gold Receipts?

Electronic Gold Receipts, or EGRs, are the electronic equivalents of physical gold. If you’re holding a specific weight of physical gold in the form of jewellery, bar, or coin, you can convert it into electronic gold by approaching a Vault Manager. In return, you will be provided with an EGR which will act as proof that you are the owner of that specific quantity of gold but in electronic form.

An EGR is treated like other securities, such as stocksmutual funds, etc. It can be traded on the stock markets like equity stocks.

The definition of EGR stated in the Bombay Stock Exchange (BSE) website is - “The instruments representing gold in electronic form is termed as Electronic Gold Receipts (EGRs) and is notified as securities, with trading, clearing, and settlement features similar to other securities that are currently available in India.”

Also Read: Have Idle Gold At Home? Put Them To Use With These Digital Gold Schemes

What is a Capital Gains Tax?

Capital gains tax is the tax levied by the Government of India on the profits made by an investor after buying and selling securities. This tax is applicable whenever there is a sale or transfer of securities such as stocks, mutual funds, etc.

As per the current rules, long-term capital gains from gold are taxed at a 20% rate while short-term capital gains are added to the taxpayer’s annual income and taxed as per the applicable slab rate.

After the amendment proposed by the finance minister in 2023, the conversion of physical gold into electronic format will be exempted from the capital gains.

However, this exemption is applicable only if there is a conversion of the gold form. In case an investor sells their gold and books profit, they will have to pay the capital gains tax at the applicable rate.

Also Read: Your Guide To Understanding Capital Gains In India [Part 1]

To conclude

There are several benefits of converting your physical gold into an electronic gold receipt or EGR. Now that the government has waived the capital gains tax, a large number of people are expected to opt for the conversion and hold their gold investments in electronic form.

Sources:

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