Budget 2023: Tax clarity on EGRs to boost gold recycling, cut imports

Finance Minister Nirmala Sitharaman has proposed the exclusion of the conversion of the physical form of gold into EGR and vice versa by a SEBI-registered Vault Manager from the purview of ‘transfer” in a bid to boost trading in Electronic Gold Receipt (EGR). As per the proposal, the conversion will not attract capital gain tax anymore. The clarity on tax treatment is expected to boost recycling of gold and bring down imports in the long run.

The Budget has also proposed that the cost of acquisition of the EGR for the purpose of computing capital gains will be deemed to be the cost of gold in the hands of the person in whose name the EGR is issued, and the holding period for the purpose. of capital gains, would include the period for which gold was held by the assessee prior to its conversion into EGR.

Where an EGR issued by a Vault Manager, becomes the property of the person as consideration of a transfer, as referred to in the newly inserted Section 47, the cost of acquisition of the asset for the purpose of the said transfer, will be deemed to be the cost of gold in the hands of the person in whose name the EGR is issued.

Effective 2024

The amendments will take effect from April 1, 2024, and apply from the assessment year 2024-25 and subsequent assessment years.

In Union Budget 2021-22, the government had entrusted SEBI to regulate EGR of the proposed gold exchange. Accordingly, SEBI has come out with a detailed regulatory framework for spot trading in gold on existing stock exchanges through the instrument of EGR.

Somasundaram PR, Regional CEO, India at World Gold Council, said the conversion of physical gold to Electronic Gold Receipt will not attract any capital gains. Thus, providing an overall digital boost to the industry and promoting investments in electronic equivalent of gold. Directionally, this year’s budget can be considered positive for the industry.”

Colin Shah, Managing Director, Kama Jewelry said the move to not impose any capital gains on the conversion of physical gold to EGR and vice versa will help further gold monetization and help to reduce the import of gold.

Last October, BSE was the first stock exchange to launch EGRs on its platform after receiving SEBI nod in February 2022.

It introduced two new products of 995 and 999 purity during the Muhurat trading on Diwali. These are now traded in multiples of 1 gram and deliveries in multiples of 10 grams and 100 grams.

EGRs can be bought by using a Demat account just like stocks and can be converted into physical gold when needed.

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