The Indian government announced the Gold Exchange in the Union Budget 2021-22, with SEBI being made the regulator of the proposed gold exchange. SEBI has released a regulatory framework for spot trading in gold on stock exchanges through the use of Electronic Gold Receipts (EGR).
Conversion of Gold to EGR and vice versa:
The government aims to promote the use of electronic gold and has proposed to exclude the conversion of physical gold into EGR and vice versa by a SEBI-registered Vault Manager from being considered as a "transfer" for capital gains purposes. The cost of acquisition of EGR for the purpose of computing capital gains will be considered to be the cost of gold in the hands of the person in whose name the EGR is issued. The same provisions apply to conversion from EGR to physical gold.
To achieve these changes, several amendments have been proposed to be made to the existing laws:
- A new clause will be inserted in Section 47 of the Act, to provide that the transfer of physical gold to EGR or vice versa by a Vault Manager shall not be considered as a "transfer."
- The newly inserted clause will include definitions for "Electronic Gold Receipt" and "Vault Manager," as per the Securities and Exchange Board of India (Vault Managers) Regulations, 2021.
- A new sub-section (10) will be inserted in Section 49 of the Act, to provide that the cost of acquisition of physical gold or EGR, in the event of a transfer, shall be deemed to be the cost of the other asset (gold or EGR) in the hands of the person in whose name it is issued.
- Explanation 1 of Sub-section (42A) of Section 2 of the Act will be amended to include the holding period for the purpose of capital gains, which will include the period for which gold or EGR was held by the assessee prior to conversion.
These amendments will take effect from April 1, 2024, and will apply for the assessment year 2024-25 and subsequent years.
The proposed changes aim to simplify the process of converting physical gold to EGR and vice versa, while also ensuring that the cost of acquisition and holding period for capital gains purposes is accurately considered. The proposed amendments are expected to promote the use of electronic gold in India.