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Tax implication for electronic gold receipts in India

To compute capital gains, the cost of acquisition of the physical gold would be taken into account

Question: My family members and I have ancestral gold. In the interest of safety, we would like to convert the same into electronic gold receipts which I believe is now permitted by the Indian government. Will there be any tax implication when I acquire the gold Receipt? At what point of time will I have to pay capital gains tax, if any?

ANSWER: The Securities & Exchange Board of India had approved the framework for setting up of a Gold Exchange by enacting Sebi (Vault Managers) Regulations, 2021. The Finance Bill 2023 has amended section 47 of the Income-tax Act to provide that no capital gains would arise when the physical gold is converted into electronic gold receipts issued by a vault manager. In other words, such a transaction would not be treated as transfer of a capital asset. Likewise, when a vault manager gives back the physical gold on surrender of the electronic gold receipt, it would not be treated as transfer of a capital asset. Hence, there would be no question of paying tax on capital gains. It is only when the physical gold or the Electronic Gold Receipt is transferred or sold to a third party, capital gains would arise. To compute such gains, the cost of acquisition of the physical gold would be taken into account. Such cost of acquisition would be indexed by the cost inflation index. Hence, such higher cost would be reduced from the sale price to determine the taxable capital gain. If the physical gold together with the electronic gold receipt is held for an aggregate period exceeding three years, such long-term capital gains would be taxable at the flat rate of 20 per cent plus surcharge and education cess. Where the total period is less than three years, the normal rates of tax would be applicable to the short-term capital gains.

Question: The number of automobiles in India is growing faster than expected but this is having an adverse impact on the environment due to pollution. Will the country be able to reconcile the conflicting dynamics of growth on the one hand and climate change on the other?

ANSWER: According to the Economic Survey presented by the Government in January this year, India was the largest manufacturer of two-wheeler and three-wheeler vehicles in 2021. It was the world’s fourth largest manufacturer of passenger cars surpassing Japan and Germany. According to the survey, the automobile sector accounts for 49 per cent of the manufacturing GDP and contributes 7.1 per cent to the overall GDP. It generates direct and indirect employment opportunities for 37 million people. However, this has had an adverse impact on the environment. The Government is therefore promoting manufacture of electric vehicles. The Economic Survey estimates that sales of electric vehicles will grow at a Compounded Annual Growth Rate of 49 per cent between 2023 and 2030. The EV industry will create at least 50 million direct and indirect jobs by the end of this decade and 10 million e-vehicles will be on the road by 2030.

Question: I have an ancestral plot of land on the outskirts of Hyderabad. As I am about to retire and return to India, I have been told that the soil in this area is conducive for growing millets. Will the growing of this crop be commercially viable?

ANSWER: The United Nations General Assembly has declared 2023 as the International Year of Millets. The Government is trying to promote this crop by organising workshops and introducing it in hospital canteens and midday meal schemes for school children. Millets have been found to be a health food by most nutritionists as it helps to reduce blood glucose levels and cholesterol. Apart from these advantages, the growing of millets is good for the environment as the consumption of water is 70 per cent less than in the case of rice. Further, millets require very little use of fertilisers and they grow in half the time of wheat. They are also less vulnerable to insect attack. Farmers are therefore being trained and encouraged to shift to production of millets as their seeds can be stored for several years which is beneficial in drought prone areas. States such as Telangana and Odisha have announced millet missions this year.

H. P. Ranina is a practicing lawyer, specializing in tax and exchange management laws of India.