Grant Thornton Bharat Budget 2023 Explainer: Indians have always valued Gold as an investment, for its ability to supply liquidity, security, returns and serve as a hedge against inflation.

To incentivise India to make disclosures on the physical form of gold they bring in the house and strengthen tax structure for the future, the finance minister has incentivised the conversion of physical gold to Electronic Gold Receipt (EGR) and vice versa which will be left out from the purview of capital gain tax.

This means that if you wish to convert physical gold to digital gold, there will be no capital gains or tax.

Based on the existing earnings tax regime long-term capital gains (LTCG) tax is applicable when the gold is sold after 3 years of purchase.

How EGRs workEGRs are a form of depository gold receipts that can be traded on stock market.

EGR is an electronic invoice issued by the Vault Manager against the gold transferred with them.

You can buy or sell EGRs the exact same way you buy and sell stocks from stock market.

If you want to transform your physical gold to digital, you can do that by depositing it with the designated vault manager.

After it is sourced, a depository receipt is developed which allows you to trade gold on the exchange.Also, if you have an EGR you can acquire physical gold by requesting the depository for the exact same.

In such a case, the vault manager will deliver the gold to you and extinguish the EGR.

As a specific (not in business of investing) when you offer EGRs, which were held for more than 3 years, you go through a tax rate of 20% after giving advantage of indexation.Top financial investment concepts 2023 - MFs, gold, real estate or Fixed Deposits? ExplainedIndexation is used to give the investors the benefit of inflation for many years.

In case the holding duration of such invoices is less than 3 years, the gain on sale of such receipts is taxed as short-term capital gains based on the relevant income tax slab.The cost of acquisition will be the original cost at which the gold was acquired prior to the conversion, and the holding period for determining capital gains shall consist of the duration for which the gold was held by the investor before conversion into EGR.Let us see the following example for much better understanding of the proposed amendments: Mr A bought 10 grams of physical gold from the market at Rs 30,000 on May 1, 2013 and in the financial year 2022-2023, he wants to convert the exact same into EGR.

He can now go to a SEBI-registered vault supervisor who would assist them with such conversion.

According to the proposed change, Mr A would not be responsible to capital gains tax on conversion of such gold to EGRs.Case-1Post such conversion, Mr A sold such EGRs on June 1, 2024 for INR 80,000.

For the purpose of calculating capital gains on sale of EGRs, the capital gains would be calculated on Rs 50,000 (post indexation advantage) and period of holding would be calculated from date of buying physical gold (May 1, 2013) to date of sale of EGRs (June 1, 2024).

In this case the capital gains would be treated to be long term in nature and would be taxable at 20 percent.

Case-2Mr A did not sell the EGRs but has actually again transformed the exact same into physical gold.

Post such conversion, he offered the same for Rs 90,000 on 31 March, 2025.

As per the proposed amendment, Mr A would not be liable to capital gains tax on conversion of such EGRs to physical gold.For the purpose of calculating capital gains on sale of gold, the capital gains would be calculated on Rs 60,000 (post indexation advantage) and duration of holding would be calculated from date of buying physical gold (May 1, 2013) to date of sale of EGRs (March 31, 2025).

The proposed amendments as talked about above, supplies a breather to investors and ought to pave the way to promote the adaptability of digital gold in India.Conversion of physical gold to EGRIn case of conversion of EGR to physical gold, the owner of the EGRs positions a request with the depository.

The vault manager performs the conversion to physical gold and the depositor collects the gold from the vault location.Can there be a shift in consumer spending in the jewellery space?LGDs (lab-grown diamonds) are an innovation-driven emerging sector with high employment potential for the country.

It is believed to have the same properties of that of the natural diamond.

In recent years, LGDs have actually been so finely crafted that their use in the jewellery sector as gems is picking up.

Given the availability of LGDs, gems made up of these are priced substantially low as compared to natural diamonds.

By 2030, the international market volume of lab-grown diamonds is anticipated to be nearly 19.2 million carats.To promote the indigenous production of such LGDs, the financing minister has stated that the custom responsibility has been waived off from an existing 5% on import of seeds used for growing these diamonds.

She likewise announced a grant to IITs to help with the growth of LGDs in India.

Given that customs responsibility has been waived off on seeds required to produce the LGD and not the LGD itself, and jewellery will be made using the LGD, for this reason creating several layers prior to reaching to the final rate, any worth assessment of impact will be extremely far stretched right now.However, if the responsibility advantage offered by the budget is passed on to the customer, the rates of the LGDs and/or jewellery made therefrom will become somewhat less expensive.

Just recently the customs duty on dore bars of gold and platinum was increased, their imports have not seen any decline post that.

Now the government has increased the responsibilities on dore bars of silver too.

Even more, considering that the duty on short articles comprised of precious metals like gold, silver, platinum and imitation jewellery has actually increased, you can anticipate a walking in their costs.

It will be intriguing to see if customer behaviour will see any shift from the standard valuable natural stone jewellery to the emerging laboratory grown jewellery in the future.