Gold remains a widely used investment avenue in India, available in multiple forms such as physical gold, gold exchange-traded funds (ETFs), sovereign gold bonds (), and digital gold. While each of these options provides exposure to gold prices, they differ in structure and regulatory framework.
These differences extend to taxation as well. The tax treatment varies by capital gains, holding periods, and applicable rates, depending on the type of investment. Here’s a breakdown of how each type of gold investment is taxed under India’s latest income tax rules.
Physical gold
Physical gold, such as jewellery, coins or bars, is treated as a capital asset under the Indian tax laws. If sold within 24 months of purchase, any gains are classified as short-term capital gains and taxed at the individual’s income tax slab, which differs between the new and old tax regimes, according to ClearTax.
If held for more than two years, the gains are treated as long-term and taxed at 12.5% without indexation benefit, which is generally meant for adjusting the cost for inflation. Additionally, making charges on jewellery are not separately deductible for tax purposes, and any sale may require documentation to establish the cost of acquisition.
Investors must also note that the indexation benefit no longer exists for calculating capital gains. All long-term capital gains will be taxed at a flat rate of 12.5% without any indexation as per the changes in Budget 2024.
Physical gold has remained a popular investment option in India, especially during festive seasons such as Dhanteras and Akshaya Tritiya, where people consider it auspicious to bring home gold.
Gold exchange-traded funds
A is a market-linked instrument that allows investors to gain exposure to gold without physically holding it. These funds are traded on stock exchanges, much like shares, and their prices track gold rates in real time. Investors need a demat account to buy and sell ETFs, and the returns depend entirely on the price movements of the precious metal.
Gold ETF units are also taxed like mutual funds when redeemed. This means if you hold the units for less than 12 months, then short-term capital gains tax would be applicable at normal slab rates. If they are held for more than 12 months at the time of sale, then a flat 12.5% tax rate would apply.
Digital gold
is offered by platforms such as PhonePe, Paytm, Jupiter and others, and it enables users to purchase gold online in small denominations without requiring a demat account. The gold is backed by physical reserves held by the provider, and investors can sell it digitally or convert gold into coins or jewellery.
The concept of digital gold has a little difference from that of physical gold. Contrary to jewellery and gold coins, one can also buy gold online, and the issuer will store it in vaults on your behalf. However, you should note that government bodies such as the Reserve Bank of India (RBI) or the Securities and Exchange Board of India (SEBI) have no authority to regulate this investment type.
The sale of digital gold attracts taxes as per the income tax rules for gold purchases. Returns from gold held for 24 months or more are termed long-term capital gains, whereas returns from gold that are held for less than this period are termed short-term capital gains, according to ClearTax.
LTCG on gold attracts 12.5% of tax with applicable cess. Meanwhile, for STCG, the tax is charged based on your income slab.
Sovereign gold bonds
Sovereign gold bonds (SGB) are issued by the RBI. It is a fixed-income instrument linked to gold prices. In addition to capital appreciation, it offers a fixed annual interest of 2.5%, paid semi-annually. These bonds have an eight-year maturity period, with an exit option after five years.
While the interest earned on the bonds is taxable, the capital gains tax arising on redemption of SGB by an investor is exempt from tax, according to the RBI. However, this applies to people who held the units till maturity.
“Budget 2026 restricted the capital gains exemption status only to SGBs bought through the original RBI issue and held till maturity, i.e., 8 years. Any premature redemption of the bonds, even by the original subscribers, will be taxable as capital gains,” said Chandni Anandan, tax expert at ClearTax.
This means any premature redemption of SGB will be taxed, depending on how long you held it. Long-term capital gains will be taxed at 12.5%, and short-term capital gains will be taxed at applicable slab rates.