Hold off selling your gold fund to pay less tax

I had invested in a gold fund-of-fund (FoF) during April 2023. Since they have reached an all-time high, should I sell? - Anonymous

When it comes to selling any investment, the decision should ideally be guided by your asset allocation plan. If the rise in gold prices has skewed your portfolio beyond your planned allocation, it makes sense to rebalance by selling a part of your gold investment.

However, in your case, there's a smart reason to hold off for just a little longer, even if you were already planning to sell. And that reason is taxes.

A tax rule that changes everything

If your gold investment is through a gold FoF (a mutual fund that invests in gold ETFs), here's something important to know: waiting just a few more days could significantly reduce your tax outgo.

Since your investment was made in April 2023, selling it now would mean the holding period is less than two years, and your gains will be taxed at your income tax slab rate.

But if you wait until April 1, 2025, when the two-year mark is crossed, your gains will be taxed at a flat 12.5 per cent. That's a big saving if you're in the 20 or 30 per cent bracket.

This rule also applies to international mutual funds and international FoFs. So, if you hold any of those, the same tax-saving opportunity exists.

For example, say you invested Rs 5 lakh in a gold FoF and it has grown to Rs 6 lakh. If you sell now, you may pay up to Rs 30,000 in tax. But if you wait until April 1, 2025, the tax drops to Rs 12,500 - a saving of Rs 17,500.

Who should take note of this?

• Investors who bought gold FoFs, international mutual funds, or international FoFs on or after April 1, 2023, and are now approaching the two-year holding period.
  
• Those in the 20 or 30 per cent tax brackets who would otherwise pay a significantly higher tax on their gains.
  
• Anyone who was already planning to sell but can afford to wait a bit longer to take advantage of the lower tax rate.

Also read: Is indexation still available on gold jewellery?

This article was originally published on March 21, 2025.