Buy digital gold for as low as Rs 100 this festival season: Details here

But those seeking greater safety should stick to SGBs or gold ETFs

This festival season, leading jewellery chains are selling gold for as little as Rs 100. With digital purchases becoming the norm during the pandemic, buyers are now amenable to the idea of purchasing the yellow metal online.

Ramesh Kalyanaraman, executive director, Kalyan Jewellers, says, “Younger, first-time buyers, who want convenience, are showing interest in digital gold.”

Kalyan Jewellers, in partnership with Augmont, introduced digital gold recently. 

Tata Group’s Tanishq and PC Jeweller, too, are selling gold for as little as Rs 100, either directly on their websites or through tie-ups with digital gold platforms.

Players like Paytm, MobiKwik, Amazon Pay, and PhonePe have been selling digital gold for a while now.

But this is the first time major players in the jewellery business have forayed into the sale of digital gold.

Backed by physical gold  

Buyers purchase gold in a digital form, but seller partners hold physical gold for every purchase made by a customer.

Vidit Garg, director, MyGoldKart, says, “You can invest in digital gold anywhere, anytime at live rates. You also don’t have to worry about the purity of gold purchased or its safety.”

The physical gold purchased to back the customer’s digital purchase is kept in a secured vault. This gold is insured. Ensuring the safety of these holdings is the seller’s responsibility.

These platforms have also made it easy for customers to start accumulating gold with very small amounts.

“Investors with as little as Rs 1 can start investing in digital gold,” says Garg.

Many platforms selling digital gold stipulate Rs 1 as the minimum amount.     

Unlike sovereign gold bonds (SGBs), digital gold does not come with a lock-in. The balance in the customer’s account or wallet can be sold anytime. Customers can take cash. They also have the option to take delivery of physical gold — as bars or jewellery.

Read more: India's September gold imports surge as prices correct ahead of festivals

Ketan Kothari, director, Augmont, says, “Customers buy gold online and then exchange it for gold jewellery of their choice at Kalyan stores.”

Soon, buyers of digital gold will be able to take a loan against it.

Nitin Misra, co-founder, Indiagold, says, “It is currently in pilot mode. We will launch it sometime this year.”

Unregulated product

A key area of concern vis-à-vis digital gold is that it is not regulated. The Securities and Exchange Board of India recently barred brokers from selling it. 

  

Buyers also have to pay 3 per cent goods and services tax — the same rate they pay when they buy physical gold.

Some sellers allow vault storage for up to five years at no cost. After that, buyers have to sell or take delivery of physical gold. This makes digital gold more suitable for those who want to save and buy gold in the short or medium term. Many players also levy an additional charge for redeeming gold in the physical form. So, understand the seller’s terms and conditions carefully.

As for taxation, capital gains arising on the transfer of digital gold get the same treatment as gains from physical gold.

Gopal Bohra, partner, N.A. Shah Associates, says, “Only if you buy SGBs and hold them till maturity is there no capital gains tax on redemption.”

What you should do

Since digital gold is not a regulated product, those who want greater safety should stick to SGBs or gold exchange-traded funds (ETFs).

“Someone with a long investment horizon should consider SGBs. While they come with a lock-in, they offer an assured return of 2.5 per cent per annum,” says Bohra.

Those who desire liquidity should opt for gold ETFs, even though they charge an annual expense ratio. Those opting for digital gold should stick to well-known names.

Tax treatment: On a par with physical gold 

• There is no difference in the tax treatment of capital gains arising from the sale of physical or digital gold
• If physical gold or digital gold is held for over 36 months before transfer, the gain is regarded as long-term capital gain
• Long-term capital gain is taxed at 20% with indexation
• Short-term capital gain (levied on holdings up to 36 months) is taxed at the taxpayer’s slab rate
• No long-term capital gain tax has to be paid on SGBs held till maturity