Understanding Income Tax On Gold Investments

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  • 08 Feb 2023

With the rise of trading exchanges, investors do not have to necessarily invest in physical gold only. Gold Exchange Traded Funds (ETFs), Gold Monetization Scheme and Sovereign Gold Bonds are a few options available to traders now.

However, when you sell gold for a profit, you are liable to pay tax. So, let us look at how the different types of gold investment are taxed in India:

Gold in form of coins, bar, jewellery, and so on is considered a capital asset for income tax purposes.

The tax rate depends on the amount of time you owned the metal for.

Period of holding Nature of capital gain Tax rate Benefit of indexation
More than 36 months
Long-term capital gain
20.00%
Yes
36 months or below
Short-term capital gain
Normal slab rate
No

Remember capital gains are applicable only if you are not in the business of selling and purchasing gold or jewelry. In such a scenario, the income from the sale would be considered a business income and not a capital gain – and taxed accordingly.

Further, if you do not pay the market value of the gold, the excess value of gold is considered as an income. This is applicable only if the market value is higher than Rs. 50,000. This has to be declared under “income from other sources” while filing income tax.

In cases where gold is received through inheritance or as gift, and subsequently sold by the recipient, the profits would be considered as capital gains. To calculate the gains, the cost of acquisition for the previous owner would be considered as the cost of the asset.

But do note that if the gold is transferred as a gift or by way of inheritance, you do not have to pay any tax.

Gold ETF allows you to invest in gold without taking physical ownership of the gold. It is similar to owning a share in a company. That’s because the ETFs are in a dematerialized form. Since the gold ETF value is based on actual gold price, any gains from gold ETFs are treated exactly like gains made by selling physical gold.

Gold Monetization Scheme

Gold Monetization Scheme was launched in 2015 to mobilize gold held by individuals. This is very much like opening a savings account with a bank. But, instead of depositing money, you have to deposit gold. You receive an interest from your gold deposit, much like you do so when you keep money in a savings account.

Here, Deposit Certificates are not considered as capital assets because transfer of gold is not involved when opening a gold saving accounts. This is the reason no tax is applicable. Further, the interest earned from the deposit is exempt from tax under Section 10(15) of the Income Tax Act

Sovereign gold bonds were introduced as a way to allow individuals to invest in gold owned by the government of India. The aim was to limit the import of gold and reduce the currency outflow.

These bonds earn an interest for the period they are held by the investor. The interest is taxable as “income from other sources”, but any gains from redemption are not taxable as capital gains.

But, if the bonds are transferred or sold to another individual, the gains are taxed as capital gains from gold.

To summarize:

Income Taxability
Income from business of sale or purchase of gold
Taxable as business income
Income from investment in physical gold
Taxable as capital gains
Income from investment in Gold ETFs
Taxable as capital gains
Interest earned from deposit under ‘Gold Monetisation Scheme-2015’
Exempt from income tax
Capital gain arising on redemption of deposit under Gold Monetisation Scheme
Not taxable as no transfer of asset involved
Interest on sovereign gold bond
Taxable as income from other sources
Capital gain arising on redemption of sovereign gold bond
Not taxable as no transfer of assets involved
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