- 5 min
Taxation on Different Types of Gold
Written by
Kashish Manjani
- Blog
- Financial Planning
Date
31 Oct 2025
Kashishmanjani
@Kashishaikeyam
YouTube
Kashishaikeyam
Taxes often feel like a heavy price on your profits. This is especially true when it comes to gold. In India, gold is more than an asset; it’s an emotion. But many investors miss out on maximizing their returns because they don’t understand the tax on gold correctly.
The way you hold gold as jewelry, a bond, or a digital asset drastically changes your tax bill. Understanding the gold tax in India is crucial today. Modern options like ETFs and Sovereign Gold Bonds (SGBs) have unique tax treatments and complexities. Here is your comprehensive guide to navigating the gold capital gains maze and making tax-efficient choices.
Different Forms of Gold Investments: Knowing Your Asse
Before calculating tax, you must identify your assets. Gold investment options have evolved far beyond the jeweler’s counter:
- Physical Gold: This includes Jewellery, coins, and bars. It represents direct ownership but incurs higher costs (making charges, GST).
- Digital Gold: This allows you to buy and own physical gold units (e.g., 99.9% pure) through online platforms like Paytm Gold or PhonePe. The gold is stored in insured vaults.
- Gold ETFs (Exchange-Traded Funds): Units of gold held in dematerialized form, trading on stock exchanges. They track the domestic price of gold.
- Gold Mutual Funds (Paper Gold): These schemes do not hold physical gold directly. Instead, they invest in Gold ETFs or companies that mine or process gold.
- Sovereign Gold Bonds (SGBs): Government securities denominated in grams of gold. They eliminate the risks and costs associated with physical holding.
Tax on Physical Gold in India (Purchase & Sale Taxability)
Purchase Tax and Associated Costs
Buying physical gold has immediate, compulsory tax implications that reduce your effective return:
- Goods and Services Tax (GST): You pay a flat 3% GST on the purchase price of the gold. Additionally, a 5% GST is levied on the jeweler’s making charges.
- Customs Duty: Any gold imported into India attracts a substantial Customs Duty, which is paid by the importer (or jeweler) and is factored into the final price.
- Tax Deducted at Source (TDS): A 1% TDS applies if you purchase gold in cash or against a bank draft exceeding ₹2,000,000 (or ₹20 lakhs) from a single jeweler. The jeweler must deduct and deposit this.
Sale Taxability: The Capital Gains Angle
Tax on selling gold applies only when you sell it for a profit. These profits are categorized as Capital Gains, either Short-Term or Long-Term.
Capital Gains Tax on Gold Jewellery and Coins
The holding period is the single most important factor determining your tax liability on physical gold:
| Gold Type / Scenario | Holding Period | Tax Rate (LTCG/STCG) | GST |
|---|---|---|---|
| Physical Gold (Jewellery, coins, bars) | ≥ 24 months (LTCG) | 12.5% + applicable cess | 3% |
| Physical Gold (Jewellery, coins, bars) | < 24 months (STCG) | As per the income slab | 3% |
Short-Term Capital Gains (STCG) (Holding Period <24 months)
- Tax Treatment: The profit is treated as regular income. It is added to your total annual income and taxed at your marginal income slab rate (which can be as high as 42.74%).
- Example: If your income slab is 30% and you sell gold for a profit within 20 months, that profit is taxed at 30% (+ cess).
Long-Term Capital Gains (LTCG) (Holding Period ≥24 months)
- Tax Treatment: The profit is taxed at a special rate of 12.5% + applicable cess, as per the table. This rate is usually lower than your marginal slab rate.
- The Indexation Benefit: You receive the benefit of Indexation. Indexation adjusts your original purchase price upwards based on the official Cost Inflation Index (CII). This significantly reduces your taxable profit, making the effective tax rate much lower than 12.5%.
- Calculation: Taxable LTCG = (Sale Price) – (Indexed Cost of Acquisition).
Taxation on Gold ETFs and Gold Mutual Funds
These “paper gold” instruments are valued for their low cost, high liquidity, and 0% GST on purchase.
Gold ETFs: The 12-Month Advantage
Gold ETFs are classified as non-equity mutual funds for tax purposes:
| Gold Type / Scenario | Holding Period | Tax Rate (LTCG/STCG) | GST |
|---|---|---|---|
| Gold ETF | ≥ 12 months (LTCG) | 12.5% + applicable cess | 0% |
| Gold ETF | < 12 months (STCG) | As per the income slab | 0% |
- LTCG Holding Period: Crucially, the long-term period for ETFs is only 12 months or more, compared to 24 months for physical gold.
- LTCG Rate: Taxed at 12.5% + cess with the benefit of Indexation.
- STCG Rate: Taxed as per your personal income slab rate.
Gold Mutual Funds (Paper Gold)
Gold Mutual Funds generally track the taxation of the underlying ETFs, but their LTCG threshold is longer:
| Gold Type / Scenario | Holding Period | Tax Rate (LTCG/STCG) | GST |
|---|---|---|---|
| Gold Mutual Funds | ≥ 24 months (LTCG) | 12.5% + applicable cess | 0% |
| Gold Mutual Funds | < 24 months (STCG) | As per the income slab | 0% |
- Tax Note: Investors should note that Gold Fund taxation rules align with the rules for debt mutual funds. They offer the indexation benefit for LTCG (24 months or more).
For personalized guidance on gold investments and tax planning, consult a SEBI Registered Investment Advisor today.
Taxation on Digital Gold
Digital gold bought through platforms like PhonePe or MMTC-PAMP is legally treated as ownership of physical gold.
| Gold Type / Scenario | Holding Period | Tax Rate (LTCG/STCG) | GST |
|---|---|---|---|
| Digital Gold | ≥ 24 months (LTCG) | 12.5% + applicable cess | 3% |
| Digital Gold | < 24 months (STCG) | As per the income slab | 3% |
- Tax Alignment: Profits are taxable under capital gains, following the 24-month rule of physical gold.
- STCG: Added to income and taxed as per the slab.
- LTCG: Taxed at 12.5% + cess with the indexation benefit.
- Purchase Cost: A 3% GST applies at the time of purchase, increasing your effective acquisition cost.
Sovereign Gold Bonds (SGBs): The Most Tax-Efficient Option
SGBs are government-backed securities and offer unique tax advantages that make them the superior long-term choice:
| Gold Type / Scenario | Holding Period | Tax Rate (LTCG/STCG) | GST |
|---|---|---|---|
| Sovereign Gold Bond (Held till Maturity) | Exempt from Tax | 0% | 0% |
| Sovereign Gold Bond (Sold in the Secondary Market) | ≥ 12 months (LTCG) | 12.5% without Indexation | 0% |
- Interest Income: You receive a 2.5% additional interest per annum on the initial investment value, paid semi-annually. This interest is taxable as per your income slab.
- LTCG on Redemption (8 years): The greatest benefit is the full exemption of capital gains tax when the bond is held until maturity (8 years). Your entire profit is tax-free.
- LTCG on Secondary Market Sale: If you sell the SGB on the stock exchange after 12 months or more but before maturity, the profit is taxed at 12.5% but crucially, you do not get the indexation benefit.
- Tax-Free Purchase: SGBs are securities, not commodities, so they attract 0% GST on purchase.
Income Tax on Gifted and Inherited Gold
Gifted Gold (Section 56(2))
The taxability of gifted gold depends on the relationship:
- From a Relative: If received from a defined relative (spouse, sibling, lineal ascendant/descendant), it is fully exempt from tax.
- From a Non-Relative: If the fair market value exceeds ₹50,000, the entire value of the gold is taxable as “Income from Other Sources” in the hands of the recipient.
Inherited Gold
- At Inheritance: Inheriting gold is not taxable at the time of transfer.
- At Sale: When you sell the inherited gold, capital gains tax applies. The holding period starts from the original purchase date by the previous owner. The cost of acquisition is also the previous owner’s purchase cost
Income Tax Exemptions and Declaration Rules
You must declare all gold holdings in your Income Tax Return (ITR) if the gold was purchased from taxable income. The CBDT provides an official comfort level for gold held without providing a source:
- Married Women: 500 grams
- Unmarried Women: 250 grams
- Men: 100 grams
Holding gold beyond these limits is permissible, but the tax department may ask for proof of purchase (invoices) or proof of inheritance. Gold purchased from agricultural income or prior tax-paid income is generally exempt from further tax.
Tips to Reduce Tax Liability on Gold Investments
Make strategic choices to legally minimize your tax outgo:
Opt for SGBs for Long-Term
If you can commit for 8 years, SGBs ensure zero LTCG tax on redemption, maximizing your post-tax return.
Maximize Indexation
For physical, digital, and Gold Mutual Funds, ensure you hold the asset for ≥ 24 months to unlock the indexation benefit. This adjustment against inflation can substantially lower your tax base.
Use Section 54F for Reinvestment
If you sell gold (which results in LTCG) and reinvest the entire sale proceeds into purchasing or constructing a new residential house within the specified time limits, you can claim an exemption under Section 54F.
Avoid STCG
If you need to sell gold before the short-term period is over (12 or 24 months), try to sell in small quantities across financial years to manage the overall impact on your income slab.
Conclusion: Choose Wisely, Invest Smartly
Taxation differs drastically across various forms of gold. Physical and Digital Gold follow the 24-month rule with GST costs. Gold ETFs have a shorter 12-month LTCG period without GST. SGBs stand out as the most tax-efficient due to the capital gains exemption on maturity.
Understanding the difference between STCG (taxed as per slab) and LTCG (lower rate with indexation) is the key to financial success. Make smarter, compliant, and tax-efficient decisions to ensure your gold investment truly delivers value.
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Written by
Kashish Manjani
Kashish blends strategic thinking with timeless financial principles — helping clients grow, protect, and align their wealth with their values. Kashish blends strategic thinking with timeless financial principles — helping clients grow, protect, and align their wealth with their values.