Income Tax on Gold

Gold is often regarded as a reliable store of value, particularly during times of geopolitical uncertainty, financial crises, or market volatility. Its reputation as a safe-haven asset attracts investors looking to protect their wealth when other investments seem unstable. However, it’s important to understand that investing in gold, whether through physical purchases or financial instruments, may have tax implications. Navigating the tax landscape for gold can help investors make informed decisions and avoid unexpected liabilities.

Budget 2024 Update

The Budget 2024 has introduced key changes that affect gold investors, impacting both the cost of acquiring gold and the tax liabilities on its sale. Starting July 23, 2024, the department will tax long-term gains on all gold investments at a flat rate of 12.5%. Short-term gains, on the other hand, will be taxed according to your applicable income tax bracket.

*New rates will come into effect from April 1, 2025

Income Tax on Physical Gold

Physical gold, such as coins, bars, and jewellery, remains a popular investment choice. Many investors prefer physical gold for its inherent value and the security of holding a physical asset. However, investing in physical gold comes with its own set of considerations and tax implications.

• Income Head – Income from selling physical gold is treated as capital gains. If taxpayers sell it after holding it for more than 24 months, it is considered a long-term capital gain (LTCG). Selling it within 24 months counts as a short-term capital gain (STCG).
• Tax Implication – For Capital gains arising from July 23, 2024, The taxpayer should pay income tax on STCG at slab rates and on LTCG at 12.5%.

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

Tip

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

Income Tax on Digital Gold

Digital gold provides a modern and convenient way to own gold without physical storage. Investors can buy, sell, and trade gold electronically using mobile wallets like Google Pay, Paytm, and ET Money. As more individuals look for accessible investment options, understanding digital gold’s features and implications is crucial for informed financial decisions.

• Income Head – Income from selling Digital gold is also treated as capital gains. If taxpayers sell it after holding it for more than 24 months, it is considered a long-term capital gain (LTCG). Selling it within 24 months counts as a short-term capital gain (STCG).
• Tax Implication – Same as Physical Gold i.e. STCG at slab rates and LTCG at 12.5% applicable from July 23, 2024.

Income Tax on Paper Gold

Paper gold offers a convenient way to gain exposure to gold prices without physical ownership. Investors can use financial instruments like gold ETFs (Exchange-Traded Funds), gold mutual funds and SGBs. This approach provides liquidity and ease of trading. It also eliminates concerns about storage, security, and insurance, making it an attractive option for diversifying portfolios.

Income Tax on Gold Mutual Funds

• Income Head – Gains from Gold mutual funds with a holding period of more than 24 months will be classified as long-term capital gains. Selling it within 24 months counts as a short-term capital gain (STCG).
• Tax Implication – For Capital gains arising from July 23, 2024, The taxpayer should pay income tax on STCG at slab rates and on LTCG at 12.5%.

Here are the tax rates for Capital gain on the sale of Gold Mutual Funds. New rates will come into effect from April 1, 2025.

Income Tax on Gold ETFs

• Income Head – Gains from Gold ETFs with a holding period of more than 12 months will be classified as long-term capital gains. Selling it within 12 months counts as a short-term capital gain (STCG).
• Tax Implication – For Capital gains arising from July 23, 2024, The taxpayer should pay income tax on STCG at slab rates and on LTCG at 12.5%.

Here are the tax rates for Capital gain on the sale of Gold ETFs. New rates will come into effect from April 1, 2025.

Tax on Sovereign Gold Bonds (SGBs)

• Income on the sale of SGB i.e. Sovereign Gold Bond within 12 months is a Short Term Capital Gain and the tax is payable at slab rates. The sale of SGB after 12 months s a Long Term Capital Gain and the tax rate is 12.5%.
• Interest on SGB is an IFOS income and is taxable at the slab rates.

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 Head – Income on the sale of gold derivatives is a Non-Speculative Business Income. The taxpayer can claim expenses against such income and compute taxable profit/loss by preparing a P&L account.
• Tax Rate – Non-Speculative Business Income is taxable at slab rates.

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:

• Tax treatment for Receiver – Gold received in the form of a gift or inheritance from a relative (spouse, children, parents) is exempt from tax as per Section 56(2) of the Income Tax Act. However, gold received as a gift or inheritance from any other person above INR 50,000 is taxable under IFOS at slab rates. A gift in the form of gold received on the occasion of marriage is exempt from tax. Further, if the taxpayer sells the gold received as a gift or inheritance, it is an income from capital gains and taxed at applicable rates
• Tax treatment for Sender – The sender doesn’t have any tax obligation if they transfer or gift gold to any relative or other person.

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:

• 20% TDS on redemption of Long Term Gold ETFs and Mutual Funds
• 30% TDS on redemption of Short Term Gold ETFs and 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:

• File ITR-2 to report income from capital gains on the sale of physical gold, digital gold, and paper gold
• File ITR-3 to report non-speculative business income on the sale of gold derivatives

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

• Short-Term Capital Loss – The taxpayer can set off STCL against STCG and LTCG. They can carry forward the remaining loss for 8 years and set off against STCG in future years.
• Long-Term Capital Loss – The taxpayer can set off LTCL against LTCG only. They can carry forward the remaining loss for 8 years and set off against LTCG in future years.
• Non-Speculative Business Loss – In the current year, the taxpayer can set off this loss against all incomes except Salary. They can carry forward the remaining loss for 8 years and set off against business incomes only.

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 they fulfil the specified conditions as per the relevant section:

• Section 54EE – Exemption available on the sale of any long-term capital asset i.e. sale of gold and investing into units of a fund notified by the Central Government to fund startups.
• Section 54F – Exemption available on the sale of a long-term capital asset i.e. sale of gold (other than residential house property) and investing into a residential house property

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