Union budget Gold funds have been separated from date mutual funds in the case of tax. This has made gold funds more attractive for investment. Also, in the budget, financial assets are divided into two periods of 12 months and 24 months in terms of capital gains tax. This may make a difference in taxes of gold ETF and gold mutual funds. Gold is an ETF passive fund. It invests its funds in the standard gold bullion of 99.5 per cent purity. On the other hand, Gold Mutual Fund Funds of Funds, which invests in Gold ETF.
What change has been made in this budget?
After amendment to the Finance Act, 2023, the Gold Fund/ETF was taxed according to the tax slab of the investor under section 50AA. The rule of short term and long term capital gains was abolished in this. Union Budget 2024 has fixed a new definition of ‘Special Mutual Fund’ under Section 50AA. It includes funds that invest 65 per cent or more money in date -based securities. This means that now the tax rules applied to gold funds will not be like date funds.
Now 3 categories of mutual funds in terms of tax
The holding period has also been made easier in the budget presented on 23 July. It is kept for one year for listed securities. Two years have been kept for all other assets. There were three types of holding periods in terms of long term capital gains. After the change in budget 2024, mutual funds have now got three categories. The first category has funds that invest in more than 65 per cent asset shares. Keeping such funds for 12 months will levy a long term capital gains tax of 12.5 percent. Keeping less than 12 months will levy 20 percent short term capital gains tax.
Gold fund in third category
The second category is of funds that invest more than 65 percent of their money in fixed income instruments. Such funds will be levied according to the tax slab of tax investors. The rules of long -term and short term capital gains tax will not be applicable in this. The third category has gold -related funds. It has 2 years without indexation long term capital gains.
Gold funds of funds not listed
In this way, due to the government’s tax provision on listed and unlisted assets, there has been a difference between gold (mutual) funds of funds and Gold ETF in terms of long -term capital gains. Arun Sudarsen, Head (ETF) of Nippon Life India Asset Management, said that since Gold ETFs are products listed on existence so that investors can take advantage of the long term capital gains on selling them after 12 months. Gold Funds of Funds are not listed, so that investors can claim long term capital gains only after keeping them for 2 years. This will apply to transactions after April 1, 2025.
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LTCG period 24 months for Gold Funds of Funds
This means that the long term capital ganes for gold ETF will be 12 months. It will have to pay long term capital gains tax at the rate of 12.5 per cent without indexation. The STCG tax will be according to the investor’s slab. On the other hand, the LTCG period will be 24 months in terms of gold funds of funds. This will be taxed at 12.5 percent. The short term capital gains will be according to the slab rate of the tax investor.