Gold ETF’s are treated as non-equity mutual funds. The taxation of returns depends on the holding period of the gold ETF units. If the gold ETF units are held for less than 12 months then the gains are taxed as short term capital gains. So in this case the returns are clubbed in the overall income of the person and depending on which tax slab he falls in; he will be taxed accordingly.
If the holding period of the gold ETF units is more than 12 months; then the profit made by selling the gold is classified as long term capital gain. Here the customer has to pay either 10% on the gain (profit) without indexation. Or the tax on the profit is 20% with indexation which ever is lower.
In case of physical gold (coins and biscuits) they are required to be held for 3 years or more to be classified as long term capital gains. If sold before 36 months then short term capital gains tax will have to be paid. So investing in gold through gold ETF’s has tax advantages over investing in physical gold.
