What is more tax-efficient- holding Gold for 3 years or not?


Dear Fpguru,
For Tax purposes, If a person buys physical gold he is subject to a long term capital gain of 20% on sale if held for more than 3 years. However if he holds it for less than 3 years he is liable for short-term capital again as per his slab rate.

So if a person falls under the lowest tax bracket ie. 10% he stands to gain and pays less tax. Is this viable?




Harsh Bhammer

Dear Harsh,


We thank you for visiting our website & asking us a question. You have asked a very interesting question. In India a large chunk of investors want to first see their tax liabilities on their investments & then only put their money in any product. The flaw with this method is that though taxability of your investments is important, other things also do matter before investing.


However to answer your query, yes it’s true that if a person buys physical gold & sells it after more than 3 years, he pays tax @ 20% with indexation benefit on the  capital gains. Indexation benefit basically means that the effect of inflation is taken into account. If a person sells the same within 3 years, he pays tax as per his slab rate. This means that if a male falls under 10% slab rate, he’ll pay only that much tax.


This however does not have much practical application. For a male income earned upto Rs 1.80 lac is tax-free. From Rs 1.80 lacs to Rs 5 Lacs it is 10%, Rs 5 lacs to Rs 8 lacs is 20% & above Rs 8 lacs is 30%. Thus if a man wants to pay only 10% tax on his gains in gold he needs to ensure that not only does his gains in gold within Rs 5 lacs, but also his salary, business, house property & other income should also fall under it. This is highly impractical. Gold prices are at lifetime highs & anyone transacting in it would definitely have a higher income. The same rule applies in the case of females & senior citizens.


If you keep in mind the bigger picture, then if you need to invest for a period under 3 years, then gold should not form part of your portfolio. You should ideally be invested majorly in debt. If the right asset allocation for the said time period is kept in mind, then every investment can be a successful investment in all  parameters including tax-efficiency.


Hope this solves your query!





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