Taxation Rules For Silver ETFs In India: What Investors Need To Know
Exchange-traded funds are investment products that track assets like gold or silver and are convenient options due to factors like their liquidity and low storage risk.
The 2024 Union Budget has introduced several taxation reforms for gold and silver investments. The government has simplified the taxation structure and slashed the Customs Duty from 15 per cent to 6 per cent to make these investments more affordable.
There are many ways to invest in these precious metals, including holding them physically. Many people prefer digital assets such as exchange-traded funds (ETFs) due to their liquidity and no storage-related risks.
Gold and silver ETFs are backed by physical holdings. To invest in these, people can trade them on brokerage platforms just like stocks. One can also opt for the ETF Fund of Funds (FoFs), which are like mutual funds and invest in underlying ETFs.
While more accessible, the new tax rules may make it difficult to understand how these investment tools are taxed. This is mainly because the new rules apply from a certain date and the investment holding period can impact the amount of tax one needs to pay.
For FY25, typically one may think that the revised rules apply to units redeemed between April 1, 2024 and March 31, 2025. However, due to 2024 being the Lok Sabha election year, the full budget was introduced only in July. Hence, the rules for the revised taxation norms came into effect on July 23, 2024.
Redeemed between July 23, 2024 and March 31
Redeemed after March 31
The holding period for silver ETF is 12 months, which means gains are treated as short or long-term based on this duration.
– If held for under 12 months (short-term capital gains): Taxed based on the investor's income tax slab rate
– If held for over 12 months (long-term capital gains): Taxed based on the investor's income tax slab rate
Case 2: Redeemed after March 31
– If held for under 12 months (short-term capital gains): Taxed based on the investor's income tax slab rate
– If held for over 12 months (long-term gains): 12.5 per cent
To be clear, the holding period for ETF FoFs is 24 months, which means that gains made from units held for less than two years in these funds are treated as short-term gains.
In addition, applicable tax based on the holding period, the capital gains may attract a 4% cess, along with a possible surcharge if your income exceeds specified thresholds under tax laws.
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