Income Tax on Gold in India

Are you thinking of investing in gold and gold-related assets? Gold can be an excellent avenue to add to your portfolio, especially since gold provides a hedge against inflation. Today, your options are not limited to physical gold and jewellery - you can buy digital gold as well!

But, before you purchase gold, you should know the income tax implications that come with it. Not all gold-based instruments are taxed the same way. So, to help you make an informed decision, here are the taxes you need to pay on various forms of gold purchase.

Tax on various forms of gold purchases

Both digital and physical gold purchases are subject to taxation. However, they are treated as separate investment instruments. Thus, they are taxed differently. We will focus on the following gold investments in the next section:

1. Tax on the sale of physical gold like jewellery, coins, and bars.
2. Tax on the sale of digital gold like Sovereign Gold Bonds (SGB) and Gold ETFs.

Tax on the sale of physical gold

For ages, people have been buying gold in its physical form, mainly gold jewellery, bars, and coins.

Here is how buying and selling physical gold is taxed in India:

Tax on the sale of digital gold

Digital gold is becoming an increasingly popular investment choice because it comes with no making charges, and you don’t need to worry about storage and safekeeping. Instead, it is stored in insured vaults by the seller on your behalf.

The two most popular forms of digital gold are Sovereign Gold Bonds (SGBs) and old ETFs. If you are planning to invest in any of these instruments, here are the tax implications.

#1 Tax on the sale of Sovereign Gold Bonds

Sovereign Gold Bonds (SGB) is backed by the Government of India. What this means is that RBI issues Sovereign Gold Bonds on behalf of the government. Thus, they are considered a safe option.

The tax implications on the sale of SGB are as follows:

Redemption of SGB on maturity Any gain on SGBs redeemed on maturity, is exempt from tax. 

#2 Taxation on gold exchange-traded funds (Gold ETFs)

Gold exchange-traded funds, or gold ETFs, are a category of mutual funds. Investors pool in their money to purchase units of these mutual funds. Then, these mutual fund units are traded on stock exchanges. The price of gold ETF units (NAV) represents the value of the underlying physical gold.

Here is how taxation works for Gold ETFs:

Income Tax on Gold Derivatives

Gold derivatives are financial contracts where gold serves as the underlying asset, traded on the commodities market. These instruments are taxed under the same rules as commodity futures and options (F&O), with the following key points:

• Income Classification: Profits from gold derivatives are classified as Non-Speculative Business Income.
• Taxability: This income is treated and taxed according to the investor's income slab, and not as capital gains.
• Deduction Claims: Taxpayers can claim gold income tax deductions such as brokerage fees, internet charges, and more by setting up a Profit and Loss account.

Income Tax on Gift or Inheritance of Gold

Indians often gift gold to loved ones on special occasions. However, there are certain implications related to tax on gold in India which must be understood:

• Tax-Exempt Transfers: Gold received as a gift or inheritance from close relatives such as parents, spouse, or children is exempt from tax under Section 56(2) of the Income Tax Act.
• Taxable Gifts: If the total value of gold received from non-relatives exceeds Rs. 50,000 in a financial year, it is taxable as “Income from Other Sources.”
• Wedding Gift Exemption: Gold jewellery received during weddings is tax-exempt. However, selling that gold later will attract capital gains tax.

Tax for NRIs buying or selling gold

Non-resident Indians (NRIs) can invest in gold in different forms. However, certain tax on gold rules and investment restrictions apply:

• Investment Restrictions: NRIs are not permitted to invest in Sovereign Gold Bonds (SGBs).
• Tax Rates: The tax rates on gold investments are generally the same as those for Indian residents.
• TDS on Redemptions: Tax is deducted at source (TDS) on redemptions from Gold ETFs or mutual funds:
• Short-term gains: Subject to 30% TDS
• Long-term gains: Subject to 20% TDS

How Can You Save Taxes on Long-Term Capital Gains from Gold Investments?

An exemption on long-term capital gains associated with gold investments can be claimed under Sections 54F and 54EC of the Income Tax Act, 1961.

• Section 54F: This income tax on gold exemption can be claimed by investing the entire LTCG amount in a residential house.
• Section 54EC: This exemption can be claimed by investing in specific government bonds such as NHAI or REC. The maximum exemption limit here is Rs. 50 lakhs.

Conclusion

Now that you know about the income tax rules for gold purchases, you can start investing in the gold asset of your choice.

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