Taxation on Different Gold Investments

Indians have long viewed gold as a secure and profitable investment. Not only does it hold cultural and emotional value, but it also serves as a reliable hedge against inflation and economic uncertainties. However, gold investments, like any other, are taxable, so understanding tax implications is key to maximising returns and avoiding unexpected liabilities.

This article discusses the new taxation rules on different types of gold investments, including gold mutual fund taxation, in India. It offers clarity on how each one is treated under the Income Tax Act.

Types of Gold Investments

Modern investors have several options when it comes to investing in gold. So, before getting into the new tax rules on gold investment, let’s first understand the different types of gold investment:

1. Physical Gold: This traditional form of investment involves buying tangible gold in the form of jewellery, coins, bars, or ornaments. While it offers a sense of security and personal possession, it also comes with the responsibility of safekeeping and storage. 
2. Digital Gold: Digital gold is similar to physical gold, except the issuer will store it in the vaults for you. You can purchase gold online through mobile wallet apps or digital platforms, starting from as little as ₹1. However, it’s important to note that digital gold is not regulated by government authorities like SEBI or the RBI.
3. Paper Gold: Paper gold refers to financial products that represent gold ownership on paper. Common forms include gold Exchange-Traded Funds (ETFs), gold mutual funds, and Sovereign Gold Bonds (SGBs). These options allow investors to get the benefit of investing in gold without worrying about physical storage or purity.

Taxation on Different Kinds of Gold Investments

Budget 2024 introduced a lot of changes in how different types of gold are taxed. Let’s discuss them one by one:

Taxation on Physical Gold Investment

Physical gold follows the same tax rules as digital gold. If you sell physical gold within two years of buying it, the gains will be regarded as STCG and taxed as per your applicable income tax slab rate.

If you sell it after holding it for more than two years, it will be considered a long-term capital asset. In this case, you will have to pay a flat 12.5% tax on the gains. However, no indexation benefit is allowed.

Moreover, when you purchase gold jewellery, a 3% Goods and Services Tax (GST) is added to the total value of the item. A separate 5% GST is applicable on making charges for gold jewellery. There is no separate tax applicable solely to the act of purchasing gold jewellery.

If you exchange old gold jewellery for a new piece, it is treated as a sale of the old jewellery. Therefore, capital gains tax will apply based on the duration for which you held the old jewellery.

Taxation on Digital Gold Investment

The simple answer to “Is digital gold taxable?” is yes. Digital gold is subject to capital gains tax. As per the new rules introduced in Budget 2024, if sold within two years of purchase, the sale proceeds are considered short-term capital gains (STCG). They are added to your total income and taxed as per your applicable income tax slab.

If you hold your digital gold for more than two years, then the gains qualify as long-term capital gains (LTCG), taxed at 12.5% without indexation benefits.

Taxation on Paper Gold Investment

• Mutual Funds

For gold mutual funds purchased between April 1, 2023, and March 31, 2025, the tax rate will remain unchanged. Gains from these units, regardless of the holding period, will be added to the investor’s taxable income and taxed as per the relevant income tax slab rates.

From April 1, 2025, the new rule of taxation on gold mutual funds will apply to units purchased on or after that date. If such units are sold within two years, the gains will be regarded as short-term capital gains and taxed at slab rates. If the holding period is longer than two years, the gains will be treated as long-term capital gains and taxed at a 12.5% rate without indexation benefits.

• Exchange-Traded Funds (ETFs)

For listed gold ETFs, gains will be treated as short-term capital gains (STCG) if the units are sold within 12 months of purchase. These gains will be taxed as per the investor’s applicable income tax slab rates.

If the listed gold ETF is sold after 12 months, the gains will be treated as long-term capital gains (LTCG) and taxed at a flat rate of 12.5%, without the benefit of indexation.

• Sovereign Gold Bonds (SGBs)

Sovereign Gold Bonds (SGBs) are treated as listed securities. If held for more than 12 months, they are classified as long-term capital assets. For any transfers made on or after 23 July 2024, the gains from such long-term holdings will be taxed at a flat rate of 12.5% under Section 112 of the Income Tax Act, without any indexation benefit. 

If the holding period is 12 months or less, the gains will be classified as short-term capital gains and taxed according to the relevant income tax slab rates.

SGBs are redeemable after a lock-in period of 8 years. Capital gains from redemption are tax-free because the redemption itself isn’t viewed as a transfer in terms of capital gains.

Note: The government has discontinued fresh issuances of the Sovereign Gold Bonds due to high borrowing costs, as announced in the Union Budget 2025.

• Tax Exemption on Sale of Gold

You can claim an income tax exemption if the proceeds from selling gold are used to purchase a residential property. Under Section 54F of the Income Tax Act, this exemption applies when the entire sale amount is reinvested in buying a new house. In such cases, the capital gains from the sale of gold are not taxed, provided the reinvestment conditions are met. 

Final Words

Taxes can significantly impact your overall returns, and being aware of the holding period, applicable tax rates, and exemptions can help you plan better. By aligning your gold investment strategy with your financial goals and tax obligations, you can maximise returns while staying compliant with regulations.