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.
- Income Head – Income on the sale of physical gold is income from Capital Gains. If the taxpayer sells physical gold after holding it for more than 3 years, it is a Long Term Capital Gain (LTCG). If the taxpayer sells physical gold after holding it for less than 3 years, it is a Short Term Capital Gain (STCG).
- Tax Rate – Taxpayer should pay income tax on STCG at slab rates and on LTCG at 20% with the indexation benefit.
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 Head – Income on the sale of gold mutual funds or gold ETFs is income from Capital Gains. If the taxpayer sells gold mutual funds or ETFs after holding them for more than 3 years, it is a Long Term Capital Gain (LTCG). If the taxpayer sells gold mutual funds or ETFs after holding them for less than 3 years, it is a Short Term Capital Gain (STCG).
- Tax Rate – The taxpayer should pay income tax on STCG at slab rates and on LTCG at 20% with the indexation benefit.
Income Tax on Sovereign Gold Bonds (SGBs)
- Interest on SGB i.e. Sovereign Gold Bond is an IFOS income and taxed at slab rates
- Income on sale of SGB on expiry of 8 years is exempt from tax
- Income on sale of SGB after 5 years but before the expiry of 8 years is a Long Term Capital Gain and the tax rate is 20% with the benefit of indexation
- Further, Income on the sale of SGB after 12 months but before 5 years is a Long Term Capital Gain and the tax rate is 10% without the benefit of indexation
- Income on the sale of SGB within 12 months is a Short Term Capital Gain and the tax is payable at slab rates
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 Head – Income on the sale of digital gold is an income from Capital Gains. If the taxpayer sells digital gold after holding it for more than 3 years, it is a Long Term Capital Gain (LTCG). If the taxpayer sells digital gold after holding it for less than 3 years, it is a Short Term Capital Gain (STCG).
- Tax Rate – The taxpayer should pay income tax on STCG at slab rates and on LTCG at 20% with the indexation benefit.
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 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 in excess of INR 50,000 is taxable under IFOS at slab rates. A gift in 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 is liable to report income on the transfer of gold and pay tax at applicable rates as per the provisions mentioned above.
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
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 and LTCG 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 he/she fulfills 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
FAQs
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.
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.
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.
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.
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.
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.
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.