Gold has always been an object of Interest for Indians but for those of us who are residing abroad, there are a few checkpoints that they must carefully observe to attain the best out of their investment.
First: How much to Invest?
Gold is an asset class that is used as store of value and diversifies the investment portfolio. An informed and critical investor should always have Gold in his portfolio. Even if you take a look, a few days back in history, there has been a trend of gold providing the necessary support in times of financial crisis in the stock markets and helps bring back the situation under control.
As gold is a non-productive an asset and returns given by it aren’t as impressive as those generated by equity in long term, an exposure of anything in between the range of 5-15% is advised by experts.
Second: Buying gold from India as against Import
The limit imposed on NRIs to import gold coins, bars and ornaments from India has been fixed at 1 Kg during each trip to India after a period of 6 months. Rajesh Dhruv of femaonline.com says, “Since the scheme provides import facility after a stay of six months, an NRI can import gold once in six months. However, short visits to India of 30 days or less are ignored in calculating this period of 6 months,”
An import duty is anyhow levied on these imports which stand at 4% for gold bars that have serial number, weight and manufacturer’s name engraved on it. In any other kind of gold like jewelry etc., an import duty of 10% is charged. An exception is allowed from import duty to NRIs, in case men buy gold up to the amount of Rs. 10000 whereas the limit for women NRIs is Rs. 20000.
In case, if you are wondering that would be a good idea for NRIs to import gold from abroad? Amresh Acharya from World Gold Council says, “With hallmarking now available at many leading gold outlets, the purity and quality of gold in India is equivalent to that in other parts of the world. However, based upon the priority of the consumer there are two counts on which this choice can be made. Traditional gold jewelry in India is inspired by the country’s rich heritage and craftsmanship. Consumers considering purchase of jewelry, especially traditional designs for socio- cultural reasons, will find unparalleled designs and themes in India. In terms of price, the import duty coupled with other local taxes has made gold in India more expensive compared to some other countries. However, other costs like making charges etc. could be more expensive in countries particularly the US and the UK. So the consumer could be better off buying gold, particularly intricate jewelry, in India.”
Third: Which form of gold to buy from India?
Jewelry: Though, this may seem interesting to a bulk of gold buyers but it does count as an investment. Moreover, as much as 30% of the gold is lost during melting and making process that acts as a wasteful expenditure. Another limitation to gold in this form is that people seldom sell their jewelry when the prices go up in markets.
Gold Coins and Bars: This physical form is better suited to investors needs and is easily available at the payment of some premium. It can be bought from any jeweler or banks like ICICI, HDFC, PNB in denominations ranging from 2.5 grams to 50 grams. The advantage to buying gold in this form is that its 24 carat pure and comes with an international certification of purity. Experts however advice that one should buy these coins or bars from their jewelers and skip buying from a bank as jewelers easily buy back these coins while banks do not buy back the coins sold by them.
Forth: Paper gold options in India
Gold ETFs: Buying gold in the form of Gold ETFs has turned out the whole process of buying gold a whole lot simpler and convenient, just the same way as buying stocks. Lakshmi Iyer of Kotak Mutual Fund says, “NRIs can invest in Gold ETFs in India. If they are buying through the exchange, then NRIs must have a PINS account. An NRI can invest in Gold ETF without PINS account directly with Fund House but in this case investor has to buy or sell in the multiples of 1000 units,”
An ETF is nothing but a mutual fund that has been present in financial markets for quite long. This Gold ETF tracks a benchmark index and its performance is connected to the way this index is chosen by investors. An investor can buy a unit that is as small as 1 gram, providing opportunity to investors who invest in the range of Rs 1000 to Rs 5000. These units can also be traded easily in the stock exchange.
Other advantages of a Gold ETF are that it isn’t unsafe to hold as compared to gold bought in physical form and you can invest as much as you want in a Gold ETF without worrying about its security. The purity of the gold bought need not be checked in case of a Gold ETF.
E-Gold: This product was launched National Spot Exchange Ltd in 2010 and allows investing in denominations of units as small as 1gram. These units can be bought and traded on the stock exchanges through a demat account just the way shares are traded.
In case of physical gold: If you sell gold in physical form i.e. Gold coins, bars, jewelry etc bought by you within 3 years of purchasing them, you will have to pay short term capital gains tax but if you end up selling these gold articles after 3 years of purchasing them, long term capital gains tax liability needs to be settled by you.
Vaibhav Sankla of H&R Block India says that “Though the buyer is required to deduct income tax at source, in most cases he would not as he would be unaware of the same. And therefore, the NRI seller will have to discharge the liability himself by making payment of income tax. It is important to note that even exchange of one form of jewellery for another gives rise to capital gains. The fair value of asset received is taken as the sale consideration for computing the capital gains,”
Tax liability for Gold ETF:
In case of Gold ETF taxation laws are more efficient as time limit for it to be considered as a long term capital gain stands at 1 year instead of the 3 year duration that is prescribed in case of physical gold.
Sankla also pointed out a few other tax saving options for NRIs
– NRIs from the Middle East should check if they can sell off the gold in the country of residence. This would no longer require payment of income tax. As, there is no export duty on taking gold out of India, the import duties in the country of residence should be checked in advance.
– The NRI should check any other asset that he holds in India (shares or mutual funds) which are resulting in tax loss. Losses booked, can be set-off against the gains from the sale of gold. One should remember that long term capital loss can be set-off only against long term capital gains whereas short term capital loss can be set-off against short-term and long-term capital gains both.
– If the NRI has purchased a house or looking forward to it then he can consider claiming exemption under section 54F.
– A NRI can consider investing in capital gains tax saving bonds to claim exemption under section 54EC.
– Don’t forget to check the tax implications in the country of residence before acting upon any of the tax planning techniques mentioned above.
Wealth Tax: Dhruv says, “Wealth Tax is something that most NRIs tend to forget. This tax is applicable simply by holding gold,” If you are an NRI and have net wealth from assets in India summing up to more than 30 lakh in a financial year, you will be required to pay wealth tax. It is must for these assets to be located in India and valuation of these assets would be based upon the market value of these assets on the date of its valuation.
Source: Economic Times
Photos: Press TV, Proactive Investors, The Hindu