Gold has long held a special place in Indian homes, both as a valuable possession and an investment. In modern times, gold investment is no longer not limited to jewellery, coins, or bars. People can now invest in gold exchange-traded funds (ETFs), fund of funds (FoFs), Sovereign Gold Bonds (SGBs), digital gold, etc., to make gains.
But the gains from the gold investment also come with an income tax bill. The tax you pay depends on the type of gold investment and the holding period.
As many people buy and sell gold, especially during the festivals of Dhanteras and Diwali, here we take you through the tax you need to pay on gains from investments in physical gold, gold ETFs, FoFs, and SGBs.
Physical gold taxation
Chartered accountant Chintan Ghelani, Partner-Direct Tax at N. A. Shah Associates LLP, told ET Wealth Online that an investor pays tax on physical gold not only when they sell but also when they buy it.
Ghelani says if the holding period is 24 months or less, the gain qualifies as short-term capital gain (STCG), and it is taxable at the individual’s applicable slab rate.
If the holding period is more than 24 months, the gain qualifies as long-term capital gain (LTCG), and it is taxable at 12.5%, plus applicable surcharge and cess, without indexation benefit.
For example, if an individual purchases gold for Rs 10 lakh and sells it after more than two years for Rs 14 lakh, the Rs 4 lakh gain would qualify as LTCG and would generally be taxable at 12.5%, plus applicable surcharge and cess.
GST on purchase of physical gold
The sale of finished gold jewellery by a jeweller attracts Goods and Services Tax (GST) at 3% on the total transaction value, including making charges, even if the value of gold and making charges are listed separately on the invoice.
However, when an individual sells personal old gold or gold jewellery to a jeweller, the transaction is generally outside the scope of GST, as the individual does not ordinarily undertake the sale in the course or furtherance of business.
Gold ETF taxation
Ghelani says gold ETFs are listed on stock exchanges, and they have a shorter holding period for determining whether the capital gain is short-term or long-term.
·If Gold ETF units are held for 12 months or less, the gain is treated as STCG and is taxable at the investor’s applicable slab rate.
·If units are held for more than 12 months, the gain is LTCG and is taxable at 12.5%, plus applicable surcharge and cess, without indexation benefit.
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One should also keep in mind that the Rs 1.25 lakh annual LTCG exemption available in respect of specified equity shares and equity-oriented mutual funds does not apply to gold ETFs.
Gold mutual fund taxation
Ghelani says a gold mutual fund (MF), or FoF, is different from a gold ETF, even though both ultimately provide exposure to gold. Gold mutual funds generally invest in gold ETFs and are not themselves exchange-listed in the same manner as gold ETFs.
Under the presently applicable provisions:
·When gold mutual fund units are held for 24 months or less, the gain is STCG and is taxable at the applicable slab rate.
·When the units are held for more than 24 months, the gain qualifies as LTCG and is taxable at 12.5%, plus applicable surcharge and cess, without indexation benefit.
This distinction between Gold ETFs and Gold mutual funds is sometimes overlooked.
A gold ETF can qualify as a long-term capital asset after its holding period exceeds 12 months because it is listed, whereas a gold mutual fund generally requires a holding period exceeding 24 months.
Sovereign gold bonds (SGBs) taxation
SGBs held till maturity
With effect from April 1, 2026, the capital gain exemption on SGB redemption has been restricted. The exemption is now available where an individual:
1.Subscribed to the SGB at the time of its original issue; and
2.Continues to hold the bond until redemption on maturity.
Therefore, an individual who originally subscribed to an SGB and holds it until maturity can continue to enjoy the benefit of no capital gains tax on redemption at maturity.
However, the periodic interest received on SGBs continues to be taxable in the investor’s hands at slab rates.
SGBs bought in the secondary market
From April 1, 2026, an individual who purchases an SGB from another investor in the secondary market does not get the maturity capital-gains exemption merely because the bond is held until its maturity date.
Broadly, for SGBs acquired in the secondary market:
·If held for 12 months or less, the gain is known as STCG and is taxable at the investor’s applicable slab rate.
·If held for more than 12 months, the gain qualifies as LTCG and is taxable at 12.5%, plus applicable surcharge and cess, without indexation benefit.
The interest received on the SGB continues to be separately taxable at the investor’s applicable rate.
Is there any GST on the purchase or sale of gold ETFs, FoFs, and SGBs?
Ghelani explains that the purchase and the sale of gold mutual fund units, gold ETF units, and SGBs do not attract GST on the securities themselves, as transactions in securities are excluded from the definition of goods and services under the GST law. However, brokerage and other taxable intermediary services relating to the purchase or the sale of these instruments generally attract GST at 18%.
