Gold Exchange Traded Fund (ETF) is a type of fund that is traded on stock exchanges. An index like a bond index or a stock index is tracked by most of the ETFs. Any mutual fund or ETF that invests money only in gold bullion and gold producing companies is referred to as Gold ETF. Gold ETF is an open-ended scheme wherein money that is collected through all willing investors is put in gold. The management of these funds is done passively and the returns generated are quite close to the returns churned out by gold in physical form.
There are two options of investing via Gold ETF these are namely, Gold Stock ETF which is linked to the companies operating in gold like gold mining etc and Gold Price ETF that is associated with gold price index.
NRIs Investing in Gold ETFs
Investing in Gold ETF has become one of the most convenient and simple forms of investment that has picked up pace in recent times primarily because it ensures good return. Even NRIs can invest in Gold ETF in India. Gold ETF has also removed the worry of purity of gold that used to tick the minds of investors, be it resident Indians or NRIs.
As a Non-Resident Indian (NRI), all you need to have is Portfolio Investment Scheme (PINS) Account if you want to buy Gold ETF through the exchange. As an NRI you also have an option of buying directly from the fund house if you do not have a PINS account. However, in this case, you will have to buy or sell in multiples of 1000 units.
Talking of tax implications – income on sale of physical gold coins, jewellery etc fall under the purview of capital gains tax when you sell them. If the sale is made within 3 years of the date of purchase then the proceeds fall in the purview of short-term capital gains tax and if sold after a period of three years from the date of purchase then long-term capital gains tax becomes applicable.
The Gold ETF serves to be more tax efficient when compared to physical gold. Unlike physical gold where long-term gain is considered after three years, in Gold ETF such gain is counted after one year.
For NRIs purchasing and selling Gold ETF units through exchange, Tax deduction at source (TDS) becomes non-applicable. They have to do a self-assessment at the time of filing their returns. But, an NRI goes for direct redemption with the fund houses, the TDS would be deducted as applicable.
Other Tax Saving Opportunities for NRIs
- If you wish to claim deduction as an NRI you may invest in capital gains under saving bonds which will help you claim exemption under Section 54EC.
- If you are living in Middle-East then you may have to put some effort to find out if you can sell gold in the country of your residence. Doing this would exempt you from paying income tax. There is no export duty when you take gold outside India however; you need to be sure of import duties in the country of your residence.
Source: Think Rupee