Buying gold during Diwali and Dhanteras has been been tradition in India. Demand for gold — especially physical gold in the form of jewellery and coins — rise during this time. However, in the view of coronavirus pandemic, when going to a jewellery shop is still considered as risk, more and more people are investing in digital gold in India. Individuals can buy digital gold from vendors and refiners through various platforms. Three companies that offer digital golds are — Augmont Gold; MMTC-PAMP India Pvt. Ltd, a joint venture between state-run MMTC Ltd and Swiss firm MKS PAMP; and Digital Gold India Pvt. Ltd with its SafeGold brand. One can also purchase digital gold via popular wallets including Paytm, Amazon Pay, Google Pay and PhonePe.
“Digital gold has increasingly caught the eye of investors as it offers all the benefits of gold and more. It is simply physical gold bought digitally and easily through a mobile app, which negates the need to go to a store," said Ashraf Rizvi, founder and chief executive officer, Digital Swiss Gold & Gilded.
Easy availability and low price are two reasons behind the immense popularity of digital gold in the recent times. Here the key things that you need to keep in mind while buying digital gold
One of the first things that investors need to check before purchasing digital gold is purity. “Digital gold purchased from MMTC-PAMP is more likely to be purer than that purchased from platforms in collaboration with SafeGold," said Pranjal kamra, chief executive officer, Finology.
Price starts from as low as Rs 1
The price of digital gold starts from as low as Re 1. Investing in digital gold allows customers to purchase fractional physical gold for a small investment, said Ashraf Rizvi of Digital Swiss Gold & Gilded.
“The gold bought by you is stored centrally and shown to you as a digital vault balance of the number of grams owned by you. You have an option to either take delivery of this gold, or sell it off on the application directly from your vault," said Prakarsh Gagdani, chief executive officer, 5Paisa.
GST and other charges
Buying digital gold will attract 3 per cent GST over the cost of your gold, just like in case of buying physical gold. Digital gold providers also charge an additional fee of 2-3 per cent for the expenses such as cost of storage, insurance and trustee fee. If customer wants to convert digital gold to physical gold, there will be making charges, depending on the quantity. Investors may also have to pay additional charges to get it delivered to your doorstep.
Maximum holding period
Digital gold products have a maximum holding period after which the investor has to take delivery of gold or sell it back. Different merchants impose different holding period conditions for digital gold.
“After holding your digital gold for 5 years with MMTC-PAMP you shall be required to either sell the gold or convert it into gold coins. So, you need to go through the FAQs carefully, specially regarding holding period and limit on investment before buying digital gold," said Pranjal Kamra, Finology.
Tax on Digital Gold
The holding period of the digital gold determines the amount of taxes an investor needs to pay. If digital gold is held for less than 36 months, returns are not taxable directly. Long-term capital gains from digital gold are taxed at 20% on returns along with applicable surcharge and 4 per cent cess.
“A major disadvantage of buying digital gold is the lack of any regulatory mechanism in the digital gold space whereas gold funds come under the regulatory jurisdiction of Securities and Exchange Board of India (SEBI). Investors can also easily invest in gold funds and redeem them through the mobile apps or websites of various mutual fund houses, investment platforms and marketplaces," Naveen Kukreja, co-founder and chief executive officer, Paisabazaar.com.