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Invest in Gold through Gold Sovereign Bond |
TAX TALK-10.07.2017-THE HITAVADA
TAX TALK
CA. NARESH JAKHOTIA
Chartered Accountant
Investment in sovereign bond score well over gold ETFs for the following 3 counts:
- It pays an interest @ 2.50% on initial investment, payable every six months.
ii. Gold ETFs charge management charges which normally could be up to 1% whereas gold bonds do not have any charges.
iii. Gold bonds are exempt from capital gains tax on redemption for individuals whereas it is taxable in gold ETF.
Invest in Gold through Gold Sovereign Bond
Query 1]
I have gone through the queries & answers on income tax on 2nd house/flat in which you have very correctly pointed out the Income tax rules provisions for 2nd house. Tax has to be paid on its rental income whether or not it is given on rent or kept vacant. Rent on assumption basis has to be added as income even if it is vacant. I don't understand the idea behind framing this rule? Why, if a person owns one house and buys another house, he has to pay tax on his 2nd house on the assumption that the block is rented? He gets exemption only on his one Self Occupied resident. It’s a ridiculous provision. My point now is, if such second house or flat is occupied by the parents or a son of assessee, will this provision apply? Can such possession not be treated as Self Occupied House and he is not required to pay tax on above assumption? [B.L.Hedaoo- blhedaoo@hotmail.com]
Opinion:
I would like to electrocute everyone who uses the word "fair" in connection with income tax policies - William F. Buckley, Jr
True, the tax treatment of the second house property is not same or similar to that applicable to first house property. If taxpayers have two or more houses which are used for own residence, then they have an option to choose any one of the house (according to their own choice) as self-occupied house, for which they would like to get an exemption from tax and its annual value will be considered as Nil. The second house (or other houses) shall be deemed to be have to been let out [whether or not actually let out] & would be taxable on the basis of its annual value. In short, if taxpayer owns more than one house property then even if the house properties are not let out,
a) One house property can be treated as self occupied house property and nothing would be taxable from such house property.
b] Other house properties shall be deemed to have been let out and its income shall be taxable on notional basis considering its annual value. Readers may rightly drawn the conclusion that income tax is payable without actual income also.
The above provision is same even if the 2nd property is in the occupation of parents, child, brother or other relatives of the owner. Second house property would be subject to tax on notional basis even in such cases. It’s a large scale misconception that Income tax is in on actual income only. Logic & law are often the stranger & may not co-exist.
Query 2]
Presently, I am staying in my Father's House with my wife and 2 children. I am working in Railways at Nagpur. I bought a 2 BHK Flat at Godhani Road, Nagpur & got possession in December-2015 on Finance for 10 years duration. It is still vacant. This is the only Constructed House in my name. Please guide me whether this property is considered as 1st property or 2nd property and whether I will have to pay income tax on this flat? If I want to sell it, after how many years I can sell it? Kindly help. [Naresh Thul, Patel Nagar, Borgaon,Nagpur-440013-nbthonda@gmail.com]
Opinion:
The present property where you are staying is owned by your father & so it will not be considered as your first house property for taxation purpose. The flat purchased by you at Godhani Road is the only house in your name and it will be considered as your first house property.
If you want to sale the property then it is advisable to sale it after a holding period of 2 years as it would result in Long Term Capital Gain (LTCG). Prior to 01.04.2017, the holding period of immoveable property for reckoning it as long term capital assets was of 3 years.
Query 3]
With reference to reply on query of Mr. Sundar Krishnaswamy in the Tax Talk dated 03/07/2017, you have mentioned that interest on Gold Sovereign bond is taxable. Please guide whether it will be taxable in the new series of bond to be issued from 10th July 2017? Whether one should invest in Gold ETF or Gold sovereign bond? Whether capital gain tax liability would be there like it is there in the case of physical gold? [anan*****325@gmail.com]
Opinion:
Sovereign Gold Bonds (SGB) are Government securities which are denominated in grams of gold. It is a nice substitute of holding physical gold & is one of the best option for investment in Gold. It offers fixed returns & eliminates the risks and costs of storage associated with physical gold. It is free from issues like making charges and purity in the case of gold in jewellery form
The Government of India has decided to issue new series of Sovereign Gold Bonds 2017-18 from 10th July to 14th July 2017. The scheme has many attractions as under:
- The capital gains tax arising on redemption of SGB to an individual is exempt from tax.
- Bond can be used as collateral security against any loan.
- Investment could be done in either demat or in paper form.
- New bond will be offering interest @ 2.50% p.a. Interest received on this bond is not exempt from tax but it is taxable exactly like FDR Interest.
- The tenure of the bond is 8 years. Early encashment or redemption of the bond is allowed only after the fifth year from the date of issue. However, the bonds are tradable on exchanges, if they are held in demat form. They can also be transferred to any other eligible investor.
- Minimum permissible investment will be 1 gram of gold & maximum permissible investment is 500 gms per person per fiscal year (April-March). In case of joint holding, the limit applies only to the first applicant.
- Comparison with Gold ETF (Electronic Traded Fund):
Investment in sovereign bond score well over gold ETFs for the following 3 counts:
- It pays an interest @ 2.50% on initial investment, payable every six months.
ii. Gold ETFs levy management charges which normally could be up to 1% whereas gold bonds do not have any such charges.
iii. Gold bonds are exempt from capital gains tax on redemption for individuals whereas it is taxable in gold ETF.
[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
or email it at nareshjakhotia@ssrpn.com]
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