Tax on Gold and Real Estate

Tax on Gold and Real Estate

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The two physical asset classes of real estate and gold have for long been considered safe havens by Indian investors, and are usually a very large chunk of portfolios. While financial products are gaining ground with investors, real estate and gold continue to hold strong. In fact, to unlock the value from the physical gold that many Indians hold and to reduce gold import, the government launched the Sovereign Gold Bonds and Gold Monetization Scheme in 2015.

In the past few years, real estate investments too have witnessed a steady decline as capital values have remained stagnant.

Real estate and gold have traditionally formed a large chunk of Indian investors’ portfolios. However, over the past few years, returns from them have been poor to negative. Apart from keeping gold or real estate for self-use, investments in these two asset classes doesn’t make much economic sense.

But if you choose to reduce exposure to gold and real estate, do pay attention to the tax rules that will apply. Here is a look at the taxes that apply to short-term and long-term gains from these two asset classes.

Source: Livemint

Tax Benefits

Real estate has structured tax benefits. There is depreciation, mortgage tax deduction, cost of repairs and maintenance and cost of legal services are considered while calculating the tax. Gold attracts capital gains tax. Additionally, any profit made in the case of gold deposit certificates is fully exempted from taxation.

Returns in Real Estate vs. Gold investment

The history says that real estate has given on average 8 percent returns and can go up to 15 percent or more. Despite the growth in rentals, the rental yield in India is around 7 to 9 percent which is lower than other investment options. However, if you look at the other side of the coin, real estate can produce regular monthly income which a gold investment cannot. The real estate can be an attractive long-term investment option where the property value increases over time. Real estate provides better returns than gold without much volatility. Additionally, when the market improves, so does the value of your property. It is wise to include real estate as a part of you overall wealth creation strategy.

Gold investment is worthwhile as it gives inflation beating results. Over a period of time, returns from the gold investment are in line with the inflation rate. However, the dark side is when gold appreciates value; it is because there is a devaluation of the paper currency. Hence, returns become nominal in the case of gold investment.

Although to your advantage, the government reduced the period after which a real estate holding is considered a long-term asset from three years to two years in 2015. But given the current valuations in the metros apart from the one house for self-use, real estate investments don’t make economic sense.

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