Electronic Gold Receipts

  • February 2, 2023
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Electronic Gold Receipts

Subject :Economy

Section: Fiscal Policy

Context: No capital gains on conversions between physical gold and EGR: Budget 2023.

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  • Electronic Gold Receipts (EGRs) were launched by BSE last October. EGRs are digital receipts of gold issued against the amount of physical gold lying with vault providers.
  • There was a grey area with respect to capital gains when one converted his/her physical gold to EGRs.
  • In the Union Budget 2023-24, it is clarified that there will not be any capital gain tax when physical gold is converted to EGR and vice-versa effective April 1, 2024. While other charges like brokerage, GST are not exempt.
  • The advantage is that, for calculating the holding period, date and purchase price of your physical gold will be considered and not the date when it was converted to EGR. So, the total holding period would be the time held in physical form plus the time held it as EGR.
  • So, basically, have to pay tax only on encashment whereas there will be no tax liability if you continue to hold gold in one form or the other.

Electronic Gold Receipts

  • EGRs are digital receipts of gold issued against the amount of physical gold lying with vault providers.
  • These receipts are issued by the vault managers and will be in accordance with SEBI (Securities and Exchange Board of India) regulations.
  • They can be bought and sold like stocks through exchanges.
  • EGRs allow people to invest in gold from a very small amount and also provide the option of taking delivery.
  • One can also convert their physical gold into EGRs through a registered vault member.
  • Under this form of gold, the trading exchange holds the underlying value of the receipt in physical gold in a vault.
  • That means investors buy the gold in dematerialised form and are given gold receipts instead of physical gold. The process is similar to the physical form of equity shares.

Capital Gains Tax

  • Under the Income Tax Act, gains from the sale of capital assets, both movable and immovable, are subject to ‘capital gains tax’. It covers real estate, gold, stocks, mutual funds, and various other financial and non-financial assets.
  • According to the Income Tax Act, if a person inherits property and does not sell it, no capital gains tax is required. However, if the person who inherited the property decides to sell it, he or she will have to pay tax on the earnings.
  • Exclusions: The following items are not considered capital assets:
    • Any stock, consumables, or raw materials stored for business or profession.
    • Personal items held for personal use, such as clothing and furniture
    • Agricultural land in India’s rural areas
    • The central government’s 6½% per cent gold bonds (1977) or 7 per cent gold bonds (1980) or national defence gold bonds (1980).
    • Special bearer bonds (1991)
    • A gold deposit bond or deposit certificate issued under the Gold Deposit Scheme (1999) or the Gold Monetisation Scheme (2015).
  • Types:
    • Short-term capital gains tax
  • Normally if an asset is held for less than 36 months, any gain arising from selling it is treated as a short-term capital gain (STCG).
  • The term for immovable assets, such as real estate, buildings, and land, has been decreased from 36 to 24 months.
  • Long-term capital gains tax
    • If the asset is held for 36 months or more. However, Shares and equity mutual funds with a holding period of 12 months or more qualify as ‘long-term’.
    • Current tax laws state LTCG arising on the sale of listed equity shares or equity oriented mutual funds are exempt from tax if one pays Securities Transaction Tax (STT) on the sale transaction.
    • Any of the assets listed below are considered long-term investments if you own them for more than a year:
      • Zero-Coupon Bonds (not dependent on whether they are quoted or not)
      • Units of the Unit Trust of India (UTI) (not dependent on whether they are quoted or not)
      • Units of equity-based mutual funds (not dependent on whether they are quoted or not)
      • Securities that are listed on a recognised Indian stock market. Government securities, bonds, and debentures are examples of such securities.
      • Preference shares or stocks held in a corporation that is listed on a recognised stock exchange in India.
economy Electronic Gold Receipts