What is Capital Gains Tax on Gold?
Gold capital gain tax is the tax you pay on the profit earned from selling gold. If you sell your gold for more than its purchase price, the difference is your capital gain. The tax rate on this gain depends on how long you owned the gold before selling it.
Let’s understand the difference between short-term and long-term capital gains tax on gold investments in India.
Short-Term Capital Gain Tax on Gold
You pay short-term capital gain tax when you sell your gold within three years of purchase. These gains are added to your total income and taxed as per your income tax slab. The higher tax rate on short-term gains discourages frequent trading or speculative buying and selling of gold.
Long-Term Capital Gain Tax on Gold
You pay long-term capital gain tax when you sell your gold after holding it for more than three years. These gains are taxed at a lower rate of 20% with indexation benefits, which helps reduce the taxable amount. This tax structure encourages long-term investment in gold.
Capital Gain Tax on Sale of Gold in India
The capital gains tax on gold depends on the form in which gold is held. Here are the various forms of gold investment and the capital gains tax provision on them -
Capital Gain Tax on Digital Gold in India
Digital gold works just like physical gold — the only difference is that you buy it online, and the issuer stores it safely in vaults on your behalf. However, it’s important to note that digital gold is not regulated by government bodies like the RBI or SEBI.
If you invest in digital gold, the tax rules are the same as those for physical or paper gold. Profits from selling digital gold held for 24 months or more are considered as long-term capital gains (LTCG), while profits from gold held for less than 24 months are treated as short-term capital gains (STCG).
Tax rates:
- LTCG: 12.5% tax plus applicable cess
- STCG: Taxes apply as per your income tax slab
Capital Gain Tax on Physical Gold in India
Physical gold includes jewellery, coins, biscuits, and ornaments — all of which have been traditional and popular investment choices in India for centuries.
As per the Income Tax Act, you must pay a 12.5% tax on long-term capital gains (LTCG) when you sell gold held for more than three years.
For short-term capital gains (STCG), i.e., when gold is sold within three years, the profit is added to your total income and taxed as per your applicable income slab.
Capital Gain Tax on Paper Gold in India
You can invest in gold without physically owning it through options like Gold Mutual Funds, Exchange Traded Funds (ETFs), or Sovereign Gold Bonds. These are known as paper or digital forms of gold investment.
When you sell your gold units at a profit, the earnings are treated as capital gains under income tax rules. The tax you pay depends on how long you’ve held the investment.
If you hold the gold for more than two years, the profit is classified as a long-term capital gain and taxed at 12.5%. However, if you sell it within two years, it is treated as a short-term capital gain and taxed according to your applicable income tax slab.
Capital Gain Tax on Gold Derivatives
Gold derivatives are financial contracts where the underlying asset is gold. You can invest in these derivatives through the commodities market. The taxation rules for gold derivatives are similar to those applicable to commodity F&O (Futures and Options) trading.
Profits earned from selling gold derivatives are treated as non-speculative business income and taxed according to your income tax slab. You can also claim business-related expenses against this income and prepare a Profit and Loss (P&L) account to determine your taxable income.
Since returns from gold derivatives are treated as business income, you can reduce your overall tax liability by accounting for related expenses. However, as some experts suggest, to avail benefits under Section 44AD of the Income Tax Act, you must maintain proper books of accounts.
Capital Gain Tax on Gift or Inheritance of Gold
In India, gold is often gifted or inherited as a symbol of love and tradition. If you receive gold as a gift or inheritance from family members or close relatives, it is exempt from income tax.
Under Section 56(2) of the Income Tax Act, gold received from your parents, spouse, or children is not taxable. Similarly, gold received as a wedding gift is also exempt from tax.
However, if you receive gold from someone who is not a relative and the total value exceeds ₹50,000, it becomes taxable as income from other sources.
Later, when you sell this gold, the profit you earn will attract capital gains tax based on how long you’ve held it.
Capital Gain Tax on Gold for NRIs
Under the Income Tax Act, Non-Resident Indians (NRIs) can invest in gold through various forms such as physical gold, digital gold, or gold-related financial instruments. However, as per RBI and FEMA regulations, NRIs are not permitted to invest in Sovereign Gold Bonds (SGBs). The capital gain tax on gold for NRIs is governed by various rules.
The tax rules for NRIs on gold sales remain the same as those for Indian residents, meaning the applicable tax rates on capital gains from gold are identical for both.
