Electronic Gold Receipts (EGRs) were launched by BSE last October. EGRs are digital receipts of gold issued against the amount of physical gold lying with vault providers. These receipts are issued by the vault managers and will be in accordance with SEBI (Securities and Exchange Board of India) regulations. They can be bought and sold like stocks through exchanges.
EGRs allow people to invest in gold from a very small amount and also provide the option of taking delivery. One can also convert their physical gold into EGRs through a registered vault member. Safety is never a question as they come under the purview of SEBI.
Tax clarification
There was a grey area with respect to capital gains when one converted his/her physical gold to EGRs. In the Union Budget 2023-24, it is clarified that there will not be any capital gain tax when physical gold is converted to EGR and vice-versa effective April 1, 2024. Note that other charges like brokerage, GST are not exempt.
Largely, in all the investments related to gold, whether it is gold bar or jewellery or ETFs (Exchange Traded Funds), the short-term capital gain (when held less than 36 months) is taxed as per your income slab and the long-term capital gain (when held more than 36 months) is 20 per cent after indexation benefits.
Assume that you opt to convert the gold bar, which you bought at ₹5,000 per gram a year before, to EGR now and the market price is ₹5,500. Here, your gain on physical gold as on the date of conversion to EGR is ₹500. However, as per the new rule effective April 1, 2024, there is no capital gain tax here. That said, if you sell this EGR, you will be liable to pay tax based on how long you have held.
Holding period
The advantage is that, for calculating the holding period, date and purchase price of your physical gold will be considered and not the date when it was converted to EGR. So, the total holding period in the above example would be the time you held in physical form plus the time you held it as EGR.
Considering the same example, suppose you decide to sell the EGR, which was converted at ₹5,500, after holding it for one year. Assuming the selling price is ₹6,000, your total capital appreciation is ₹1,000 (₹6,000-5,000) and total holding period is two years. Hence, you will have to pay short-term capital gain of ₹100 per gram if you fall in the 10 per cent tax slab. It can go up or down depending on total income.
So, basically, you’ll pay tax only on encashment whereas there will be no tax liability if you continue to hold gold in one form or the other.
