Income Tax on Gold – Investment Types, Rates, Exemptions

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.
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%.
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 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 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

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. Hey @sushil_verma

    There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.

  2. Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.

    For eg,

    • Medical allowance is exempt up to INR 15,000 on a reimbursement basis.
    • Children education allowance is exempt up to Rs. 200 per child per month up to a maximum of two children.
    • Conveyance allowance is exempt up to a maximum of Rs. 1600 per month.

    Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.

  3. The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).

    Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).

    As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.

  4. Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback.

  5. Hey @shindeonkar95

    In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.

    However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.

    Hope, it helps!

  6. Hello,

    Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?

    There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?

    I couldn’t find anything on this. Any help is appreciated.

  7. Hello @Veejayy,

    Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.

    Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.

    These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!

    Also, interest earned on these bonds will be taxable.

    Hope this helps!

  8. Hi, I need to file my income tax for FY21, I am using Quicko platform for filing, I wanted to confirm if the ELSS investment amount for the FY21 is to be added in the section 80C, since I already the amount of Rs30,072 , should I add my ELSS amount to this existing amount and submit the total

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