Digital Gold: A New Way to Invest in Gold

Gold holdings with Indian households have neared a whopping $5 trillion, according to a research report by Kotak Institutional Equities. This value comprises 65% of non-property wealth in the country, with each household holding around 100-150 grams of gold worth between ₹15-20 lakh at current prices.

However, if your investment in gold is not for personal use, there are other alternatives to choose from, such as digital gold, gold exchange-traded funds (ETFs), or gold mutual funds. In this article, we will explore digital gold, its cost, associated charges, tax liability, and regulatory protections.

What is Digital Gold?

Digital gold is conceptually not very different from physical gold. The big difference is that you can purchase digital gold online, and the issuer stores it in a vault on your behalf. According to a report by Clear Tax, digital gold is subject to income tax rules, where returns on digital gold held for over 24 months or longer are termed under long-term capital gains (LTCG) at 12.5% with applicable cess, and less than 24 months is taxed under short-term capital gains (STCG) at a rate as per your income slab.

Digital Gold — Key Highlights

• Features: Digital gold allows you to own physical gold stored securely in your name.
• Mode of Purchase: You can buy digital gold online via apps or websites.
• Minimum Investment: The minimum investment starts from as low as ₹1.
• Gold Purity: The gold purity is assured to be 24K, 999.9 purity.
• Liquidity: You can buy or sell digital gold anytime.
• Storage & Security: The gold is stored in vaults by the provider, usually at no extra cost.
• Regulation: Digital gold is not uniformly regulated and does not have an overseeing authority.
• Delivery Option: You can convert digital gold into physical coins or bars and get delivery.

Benefits of Digital Gold

Digital gold has several benefits, including:

• Affordability: The investment charges start at ₹10 and can be as low as ₹1, depending on the asset company.
• Easy to Hold and Store: You do not have to ensure the safety and security of physical gold, as it is secured in vaults by the asset company.
• Liquid Asset: You can buy and sell digital gold at any time without needing a demat account.
• Gift Option: Digital gold can be used as a gift, and it does not include making charges attached to traditional gold purchases.
• Conversion to Physical Gold: Depending on the asset manager and terms of investment, you may have the option to convert digital gold into physical gold.

Tax Implication of Digital Gold

The tax implication of digital gold depends on the holding tenure of the asset. If you sell digital gold within 24 months, the profits are taxed as short-term capital gains (STCG) at your income tax slab rate. If you sell digital gold after 24 months, the profits are taxed as long-term capital gains (LTCG) at 20.8%.

According to a Clear Tax report, you can claim LTCG exemption from gold investments under Sections 54F (invest gains into a residential house) and 54EC of the Income Tax Act 1961.

Key Things to Consider Before Investing in Digital Gold

Before investing in digital gold, ensure you:

• Complete due diligence and understand the terms properly before signing on.
• Check the fine print for any investment you make.
• Understand that digital gold falls under the regulatory grey zone and is not under the purview of any financial sector regulator such as SEBI or RBI.

For more information on investing in gold, you can visit our website and read articles on gold investment, gold ETFs, and gold mutual funds.