Investors can now choose from several ways to invest in gold, such as Gold Exchange Traded Funds, Gold Mutual Funds, physical jewellery and bullion, or digital gold. Long-term capital gains on gold are taxed at 12.5% without indexation, while short-term gains are taxed according to your income tax slab.
Taxation of Different Forms of Gold
The following table shows tax rates and holding period differences for different forms of gold:
| Form of Gold | Holding Period for STCG | STCG Tax Rate | Holding Period for LTCG | LTCG Tax Rate |
| Physical Gold (bars, coins, jewellery, digital gold) | ≤ 24 months | Normal slab rates | > 24 months | 12.5% |
| Gold ETF | ≤ 12 months | Normal slab rates | > 12 months | 12.5% |
| Gold Mutual Funds | ≤ 24 months | Normal slab rates | > 24 months | 12.5% |
| Sovereign Gold Bonds (SGB) -originally subscribed and held till maturity (8 years) | – | Exempt | Exempt | Exempt |
| SGB sold (other than above) | ≤ 12 months | Normal slab rates | > 12 months | 12.5% |
What is Digital Gold?
- Digital gold works in much the same way as physical gold.
- The main difference is that you can buy digital gold online, and the company keeps it safe for you in secure vaults.
- Also, government organizations such as RBI or SEBI do not regulate this type of investment.
Income Tax on Digital Gold
- When you sell digital gold, you need to pay taxes according to the income tax rules for gold purchases.
- If you hold gold for 24 months or longer, your returns are called long-term capital gains. If you sell before 24 months, your returns are short-term capital gains (STCG).
- The tax rules for selling digital gold are the same as those for physical gold and paper gold.
- Long-term capital gains (LTCG) on gold are taxed at 12.5% plus any applicable cess. For short-term capital gains (STCG), the tax rate depends on your income slab.
Taxes on Physical Gold Purchase
- Physical gold includes jewellery, gold biscuits, ornaments, and coins. For many years, people in India have chosen physical gold as a popular way to invest.
- According to the Income Tax Act of India, you must pay a 12.5% tax on long-term capital gains (LTCG) when you sell gold.
- This rate does not apply to short-term capital gains. For STCG, the tax is based on your income slab.
Income Tax on Paper Gold
- You can invest in gold through paper forms, but you do not get the physical metal. Examples include Gold Mutual Funds, ETFs, and Sovereign Bonds.
- When you sell units of ETFs or mutual funds, the profit you make is called a capital gain.
- In India, long-term capital gains from selling gold are taxed at 12.5%.
- However, for short term capital gains on sale of gold, the applied tax rate will be as per your income slab.
Income Tax on Gold Derivatives
- Gold is the underlying asset for gold derivatives, and you can invest in these contracts.
- You can buy these derivatives in the commodities market. The tax rules for them are similar to those for commodity futures and options trading.
- Profits from selling gold derivatives are considered non-speculative business income and are taxed according to your income tax slab.
- You can also claimYou can claim expenses against the income earned from selling gold derivatives. To calculate your taxable income, prepare a profit and loss account.’ returns are eligible to be claimed as business income, which can curb the tax burden on such transactions.
- As per some Some experts say that to benefit from Section 44AD of the Income Tax Act, you need to maintain proper books of accounts.
Income Tax on Gift or Inheritance of Gold
- In India, people often give or inherit gold during special occasions.
- If you receive gold as a gift or inheritance from family members or relatives, you are eligible for an income tax exemption on it.
- As per Section 56(2) of the Income Tax Act, gold received as a gift from parents, spouses, or children is not liable for income tax.
- Gold received as gifts on the occasion of weddings are also not taxable.
- On But if you get gold from someone who is not a relative and its value is more than Rs 50,000, you have to pay tax on it.uch income is taxable under the head Other Sources.
- If you later sell the gold you received, you will have to pay capital gains tax.
Income Tax Rules on Gold for NRIs
- As per the Income Tax Act, non-resident Indians can invest in physical gold, digital gold, paper gold, etc.
- However, NRIs are not allowed to invest in Sovereign Gold Bonds as per RBI and FEMA norms.
- Though the applicable tax rate on gold sales for NRIs is the same as the Indian residents.
How Can You Save Taxes on Long-Term Capital Gains from Gold Investments?
- An exemption on Long-Term Capital Gains can be claimed under Sections 54F and 54EC of the Income Tax Act 1961.
- Section 54F exemption can be claimed by investing the long-term capital gains into a residential house.
- When you sell gold and purchase a residential house property with the sales proceeds, the capital gains on such sale of gold is proportionately exempted.