Gold can be bought in many forms—physical gold like jewellery and coins, digital gold, gold exchange-traded funds (ETFs), sovereign gold bonds (SGBs), and gold mutual funds. Each form offers different benefits in terms of safety, returns, and convenience. However, their tax treatment also varies significantly because of the several changes made in past financial years. This can affect your overall returns. While physical or digital gold can attract capital gains tax, gold ETFs and paper gold forms may offer indexation benefits or tax exemptions under certain conditions. Understanding how each form of gold is taxed can help investors make smarter choices and plan better for long-term wealth creation and savings.

Physical gold

Taxation of Gold Investment (Gold ornaments, Gold Bars, etc.)

"Prior to 23 July 2024, if gold capital assets are sold within a holding period of 36 months, the gains are treated as short-term capital gains and taxed at the individual's applicable marginal slab rates. If such asset is held for more than 36 months, the gains qualify as long-term and are taxed at 20% u/s 112 with the benefit of indexation," said CA (Dr.) Suresh Surana.

However, with effect from 23 July 2024 onwards, the Finance Act, 2024 has reduced the holding period threshold for classification as a long-term capital asset from 36 months to 24 months.

Furthermore, the tax rate on such long-term capital gains is rationalised to a flat 12.5% without indexation. Short-term capital gains on sales made on or after this date (i.e., where the holding period is 24 months or less) the gains would be continue to be taxed at the applicable marginal slab rates.

Gold ETFs

The tax treatment of Gold Exchange Traded Funds (Gold ETFs) varies based on the date of acquisition and the period of holding. For units purchased before 1 April 2023, if held for upto 36 months, any gains arising on sale are treated as short-term capital gains (STCG) and taxed at the investor’s applicable marginal slab rates. However, if such units are held for more than 36 months, the gains are classified as long-term capital gains (LTCG) and taxed at 20% u/s 112 with the benefit of indexation.

For Gold ETFs acquired between 1 April 2023, all capital gains, regardless of the holding period, are treated as short-term and taxed at slab rates. This treatment results from the withdrawal of indexation benefits for debt-oriented mutual funds under the Finance Act, 2023.

"From 1 April 2025 onwards, a new regime applies. If Gold ETFs are held for 12 months or less, the gains are considered short-term and taxed at the applicable marginal slab rates. However, if they are held for more than 12 months, the gains qualify as long-term capital gains and are taxed at a concessional flat rate of 12.5% without indexation, in line with the amendments introduced by the Finance Act, 2024," said Surana.

Paper gold

Tax Implications on Sale/ Redemption of Sovereign Gold Bonds (“SGB”)

*Tax implications on Interest Income

SGBs holders are eligible to receive income in the form of interest at the rate of 2.5% p.a on the amount of initial investment. Since such income is not exempt from tax under the provisions of IT Act, it shall be taxed at the prevailing slab rates under the head “Income from Other Sources”

*Tax implications on Redemption on Maturity of the SGBs

Section 47(viic) of the IT Act provides that any transfer of sovereign gold bonds issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, by way of redemption by an individual shall not be regarded as “transfer”. Therefore, individual taxpayers redeeming their SGB investment at maturity will not be liable to pay any capital gains tax.

*Tax implications on the Sale/Transfer of SGBs before Redemption

"In case the investor has transferred for sale/ transfer of SGBs before redemption, he/she would be liable to pay capital gains tax. Before 23 July 2024, if SGBs are sold within a holding period of 36 months, the gains are treated as short-term capital gains and taxed at the individual's applicable marginal slab rates. If such an asset is held for more than 36 months, the gains qualify as long-term and are taxed at 20% u/s 112 with the benefit of indexation," said Surana.

However, with effect from 23rd July 2024 onwards, the Finance Act, 2024 has reduced the holding period threshold for classification as a long-term capital asset from 36 months to 12 months.

Furthermore, the tax rate on such long-term capital gains is rationalised to a flat 12.5% without indexation. Short-term capital gains on sales made on or after this date (i.e., where the holding period is 12 months or less) the gains would be continue to be taxed at the applicable marginal slab rates.

Gold derivatives

Returns from trading in gold derivatives may be treated as business income under the Income Tax Act, 1961. "For eligible taxpayers, such income can be offered under the presumptive taxation scheme provided under Section 44AD, which is designed to simplify tax compliance for small businesses," said Surana.

Under this scheme, if the total annual turnover from gold derivative transactions does not exceed ₹2 crore (enhanced to ₹3 crore where at least 95% of receipts and payments are through banking channels i.e. other than cash), the taxpayer is not required to maintain detailed books of accounts or undergo a tax audit. Instead, a presumptive income of 8% (6% in case where turnover/ gross receipts is realised by Account Payee cheque, demand draft, ECS, etc.) of total turnover may be declared as taxable income, effectively limiting the tax outgo to that extent.