Income Tax on Gold - Investment Types, Rates, Exemptions

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Sakshi Shah

ETF
Gift Income
SGB
Tax on Gold
Last updated on February 8th, 2023

Investing in gold is very popular amongst investors. Based on their financial goals, individuals invest money into different forms of gold. Physical gold is the oldest form of gold investment. However, in recent times there are multiple options available for gold investment. Investors can invest in jewellery, gold coins, gold ETFs, SGB, digital gold, gold derivatives, etc. Different forms of gold investment have different tax treatments. Let us understand the tax implications on types of Gold Investments in India.

Income Tax on Physical Gold

Investment in Physical Gold means gold in the form of jewellery, bars, coins, or biscuits. Below are the tax provisions on the sale of physical gold.

On purchase of physical gold, the buyer must pay a GST of 3%. Further, on purchase of physical gold of more than INR 2 lacs in cash, the buyer must deduct and deposit TDS at rate of 1%.
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On purchase of physical gold, the buyer must pay a GST of 3%. Further, on purchase of physical gold of more than INR 2 lacs in cash, the buyer must deduct and deposit TDS at rate of 1%.

Income Tax on Paper Gold

Paper Gold comprises Gold ETFs, Gold Mutual Funds, and Sovereign Gold Bonds (SGB). In the case of paper gold, the investor holds gold on paper but not physically. Below are the tax provisions for paper gold.

Income Tax on Gold Mutual Funds and Gold ETFs

Income Tax on Sovereign Gold Bonds (SGBs)

Income Tax on Digital Gold

Digital Gold means investing in gold through mobile wallets like google pay, Paytm, ET Money, etc. The investor does not hold physical gold and has the ability to invest in gold through online mobile wallet applications. Below are the tax provisions on the sale of digital gold.

Income Tax on Gold Derivatives

Gold derivatives are derivative contracts where the underlying asset is gold. An investor can buy gold derivatives from the commodities market. The tax treatment on the trading of gold derivatives is the same as income tax on commodity F&O trading.

Income Tax on Gift or Inheritance of Gold

Gifting or inheriting gold is a common practice in India. Below are the provisions for income tax on gift of gold:

Income Tax Rules on Gold for NRIs

Taxpayers holding the status of NRI i.e. Non-Resident Indian as per the Income Tax Act can invest in all forms of gold investments except SGB (Sovereign Gold Bonds). The rules for taxation on the sale of gold investments in the case of NRI are the same as in the case of a Resident.

However, NRIs must pay TDS on the redemption of Gold ETF or Gold Mutual Funds:

ITR Form & Treatment of Loss on Sale of Gold

The taxpayer must file the following ITR on the income tax website to report the income from the sale of gold:

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Following are the rules for set off and carry forward of loss on the sale of gold investments:

How to Save Taxes on LTCG from Investment in Gold?

Taxpayers having income from capital gains can save taxes by investing in specified assets as per the exemptions under Capital Gains. If a taxpayer has LTCG income from the sale of gold, here are the available options to avail of exemption if he/she fulfills the specified conditions as per the relevant section:

FAQs

Do I need to pay tax on the sale of gold?

Yes. Gold in form of physical, digital or paper gold is considered a Capital Asset. The holding period to determine the nature of gain is 3 years. You must compute capital gains and pay tax at 20% on LTCG with indexation benefit or slab rates on STCG.

What is the tax rate on the sale of gold ETF?

Gold ETF is treated as a Capital Asset just like other ETFs and Mutual Funds. The tax rate on Gold ETF held for more than 3 years is 20% with the benefit of indexation and on gold ETF held for up to 3 years is at slab rates.

Are gold derivatives taxed in the same manner as physical gold?

No. Gold derivatives are taxed as Commodity derivatives and thus the tax treatment is different than in the case of physical gold. Income on the sale of gold derivatives is treated as a non-speculative business income and taxed at slab rates. The taxpayer must prepare P&L and Balance Sheet and report them in ITR-3.

I inherited gold from my parents. Do I need to pay tax on it and report it in ITR?

Gold inherited from relatives is exempt from tax as per Section 56(2) of the Income Tax Act. The definition of relative includes spouse, parents, and children. You should report it as Exempt Income under Schedule EI of the ITR and need not pay tax on it.

I received gold as a gift at my wedding. Do I need to pay tax on it and report it in ITR?

Gift received from relatives is exempt from tax as per Section 56(2) of the Income Tax Act. Gift received from non-relatives is taxable if the amount is in excess of INR 50,000. However, any gift received on the occasion of wedding is exempt from income tax. Thus, you can report it as exempt income in the ITR and need not pay tax on it.

Got Questions? Ask Away!

  1. Can you also clarify, if I gift Sovereign Gold Bonds or Gold ETFs to my adult children , they also follow the same rules as physical gold.

  2. Hi @Vijay_Sharma

    Yes, it applies the same taxability on gifting Sovereign Gold Bonds as physical gold. And the interest on such gold bonds will be taxable under Income from Other Sources (IFOS).

    Hope it helps.