Investing in gold? Know these taxation rules (2024)

There was a time when most of the world used gold as a currency. Though gradually currencies were separated from gold, it is still considered one of the best investments today. With a plethora of schemes introduced, an investor is not necessarily required to invest in physical gold. Gold Exchange Traded Funds (ETFs), gold futures, gold savings funds, gold bonds etc are some of the popular paper gold investments appealing the investors nowadays. However, when it comes to selling the gold for gains, the profit is taxable as applicable under general consumption tax and income tax. Here’s how different types of gold investments are taxed:

Tax on physical gold

Some of the popular varieties of physical gold are jewellery, coins, biscuits and ornaments. These are available in families as heirloom or gifts. As an individual when you sell physical gold you are subjected to a 20% tax rate, as well as a 4% cess on long-term capital gains. Short-term are ones when you sell gold within three years of purchase, while gold sold after three years is considered a long-term.

Short-term capital gains are taxed as per the income tax slab. On the other hand, Long-term capital gains are taxed 20% along with any necessary surcharge. They are also subjected to a 4% cess with indexation benefits. The capital gains are considered if the person is not into the business of selling and buying gold. In such businesses, income from the sale of gold is considered business income and is taxed accordingly.

Furthermore, on buying jewellery, if one pays cash for jewellery worth more than Rs 2 lakh, 1% TDS and 3% GST is charged on the value of gold along with any making charges applicable.

The gold, transferred as a gift or inherited, is exempted from any tax.

Tax on Gold Exchange Traded Funds (ETFs)

Gold ETFs are traded on the stock exchange. One gold ETF unit equals 1 gram of physical gold. Taxes on the profit earned on the sale of gold ETF are equated with the sale of physical gold. While short-term capital gains before the three-year holding period are added to your income and taxed as per the existing slab rate, the long-term capital gains after three years of holding are subject to 20 % tax with indexation benefits. So, if the value of your gold increases by 12% each year and inflation spikes to 8% in the same period, then the tax will be applicable only on 4%.

Tax on Gold funds

The gold savings funds which are also called Fund of Funds (FoF) are directly or indirectly invested in gold reserves – both in domestic and global markets. The investor is not required to open a Demat account to invest in gold funds. In India, taxation on Gold Funds is quite similar to how taxes are levied on gold jewellery.

Tax on Gold Sovereign Bonds

Sovereign Gold Bond (SGB) under the Gold Monetization scheme are issued by the Reserve Bank of India on behalf of the government of India. These bonds offer a maximum limit of subscription of 4 kg in case of individuals and Hindu Undivided Family (HUF) and 20 Kg for trusts and similar entities notified by the government from time to time per fiscal year (April – March). The interest on SGBs is taxable as per IT Act, 1961. The capital gain on the maturity amount is completely exempted from tax. However, if the amount is redeemed before maturity, the capital gains tax is liable.

Tax on Gold Monetisation Scheme

Gold Monetisation Scheme was introduced by the government of India in 2015 to safeguard the gold held in Indian households and to earn interest on that unused gold with an objective to cut down the country’s gold imports by decreasing domestic demand. The government offers tax benefits to encourage the depositing of idle gold in GMS. Tax is not applicable on this scheme as Deposit Certificates are not considered as capital assets since the transfer of gold is not involved. Furthermore, capital gains are also exempt from wealth tax and income tax under Section 10(15) of the Income Tax Act.

Moneycontrol journalists were not involved in the creation of the article.