Tax implications on Gold investment – Physical, ETF & Gold Sovereign bonds

Tax implications on Gold investment - Physical, ETF & Gold Sovereign bonds


Gold is shimmering more with falling share market & recession in real estate sector. At its highest rate in the last 6 years, Gold is still considered as the most preferred choice of investment by Indians. There are different ways of making an investment in Gold- physical gold, Gold Exchange Traded Fund (ETF), Gold sovereign Bonds. Interestingly, all have different tax impact. Let us have a look at it:

For centuries, yellow metal has been used as money and has been a relative standard for currency equivalents. Not for its shine or usage alone, Indians buys Gold for the sake of investments & returns as well.

Taxation on sale of Physical Gold

Profit arising on sale of physical gold is taxable under the head “Income from Capital Gain” except in case of persons who are in to the business of jewelry where it is taxable as Business income.

If gold is sold after a holding period of more than 36 months then profit on sale of it is treated as Long Term Capital Gain (LTCG), else it will be considered as short term (STCG). LTCG is required to be computed by reducing cost of acquisition from the net selling price. Further, indexation benefit is also available to gold with a holding period of more than 36 months meaning thereby that the cost of acquisition would be enhanced to compensate inflationary effect. In case the gold is not purchased by the taxpayer but the same is inherited (or is received by way of gift) then the cost & date of the previous owner is to be considered in the hands of recipient for computing capital gain. If the gold is purchased on or before 01.04.2001, then the rate as on 01.04.2001 can be adopted for computing Capital gain. LTCG is taxable @ 20% plus applicable surcharge and education cess.

LTCG arising on sale of gold can be saved by claiming an exemption u/s 54F (Investing the sale proceeds in a house) or u/s 54EC (Investment in bonds of NHAI/REC). The short term capital gain is treated like any other regular income and taxable according to the applicable tax slab of the taxpayer. It may be noted that no tax liability arises at the time of receipt of gold by way of gift from the ‘relative’ or if it is received by way of inheritance. The tax liability would arise only on its sale.

Taxation of Gold ETF

Gold ETF scores well over physical gold due to convenience of storage and disposal, even though such convenience may entail a small cost in terms of charges. It is considered as more safe & returns oriented investment as it is theft free & have easy liquidity.
Units of gold ETFs are treated like ‘Debt funds” of mutual funds & taxed accordingly. As Gold ETF are not equity oriented mutual funds, long-term capital gains (LTCG) on the sale of gold ETF’s is not fully exempt from tax. For the same reason, Short-term capital gains (STCG) would be taxed at a normal rate & not at special rate of taxation of 15% applicable on sale of shares through recognized stock exchange.

The holding period & tax rate for gold ETF are similar to that of gold as discussed above i.e., holding period for ETF to qualify as long term is a period of more than 36 months and the tax rate applicable would be 20%. Indexation benefit as well as tax saving options u/s 54F, 54EC is available for saving tax on LTCG arising from Gold ETF.


Taxation of Gold Sovereign Bond Scheme

Sovereign Gold Bonds (SGB) are Government securities which are denominated in grams of gold. It is a nice substitute of holding physical gold & is one of the best options for investment in Gold that offers interest on gold investment which is missing in Physical Gold & Gold ETF. The interest on sovereign gold bonds is taxable as “Income from other source”. Capital gains arising on such bonds shall be fully exempt on maturity. However, the profits made on sale of such bonds before the redemption date shall be taxable depending on the holding period.

Taxation of Gold Monetisation scheme

The Gold deposit certificates were issued for gold deposited pursuant to the Gold Monetisation Scheme 2015. It was kept outside the definition of “capital assets” under the Income Tax Act-1961. Resultantly, any profits made on redemption/ maturity of such deposit is fully exempt from taxation. Further, interest earned on such deposit certificates is also fully exempt.


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