Gold prices are hovering near record highs, and Indian investors are increasingly buying gold in different forms. What was once limited mainly to jewellery has now expanded into multiple investment options such as digital gold, gold ETFs, gold mutual funds, and sovereign gold bonds (SGBs). While all these products are linked to the same precious metal, tax laws in India treat each form very differently. This difference in taxation is often the biggest source of confusion for investors.
Understanding how gold is taxed before investing or selling can make a significant difference to your final returns. Here is a clear, detailed explanation of how taxation works across various gold products in India.
Under Indian income tax laws, gold is not taxed simply as a metal. Instead, taxation depends on the form in which gold is held and how it is classified. Physical gold such as jewellery, coins, and bars is viewed as both a consumption item and an investment. As a result, it attracts GST at the time of purchase and capital gains tax at the time of sale.
On the other hand, gold ETFs and gold mutual funds are treated as financial assets, similar to other market-linked instruments. Sovereign gold bonds are classified as government securities, which is why they enjoy special tax benefits. This classification-based approach is the primary reason why tax rules vary so widely.
When you buy gold jewellery or digital gold, the tax impact begins immediately. A Goods and Services Tax (GST) of 3 percent is levied on the purchase value of gold. In the case of jewellery, making charges also attract a higher GST rate.
Later, when the gold is sold, capital gains tax becomes applicable. If the holding period is short, gains are taxed according to the investor’s income tax slab, which can significantly reduce net profits. Since the government considers these products closer to direct commodity purchases, the overall tax burden tends to be higher compared to financial gold products.
Here is how major gold investment options are taxed in India:
Physical Gold (Jewellery, Coins, Bars):
GST of 3 percent is charged at purchase, with additional GST on making charges for jewellery. Capital gains tax applies on sale. Long-term capital gains (after 24 months) are taxed at 12.5 percent without indexation. Short-term gains are taxed as per income slab.
Digital Gold:
Purchase attracts 3 percent GST. Capital gains tax applies on sale. Long-term capital gains are taxed at 12.5 percent after 24 months, while short-term gains are taxed at slab rates.
Gold ETFs:
No GST is charged on purchase. Capital gains tax applies on redemption or sale. Long-term capital gains are applicable after 12 months and taxed at 12.5 percent. Short-term gains are taxed as per income slab.
Gold Mutual Funds:
Similar to gold ETFs, there is no GST at purchase. Capital gains tax applies, with long-term classification after 12 months and taxation at 12.5 percent.
Sovereign Gold Bonds (SGBs):
No GST on purchase. Annual interest earned is taxable as per income slab. However, capital gains on redemption at maturity are completely tax-free.
Although gold ETFs and gold mutual funds track gold prices, they are considered financial instruments rather than physical assets. Because of this, GST is not applicable. Earlier, these products offered indexation benefits for long-term capital gains, but that benefit has now been removed. The government’s reasoning is that market-linked investment products should follow uniform mutual fund taxation rules.
Sovereign gold bonds are issued by the Government of India and are considered a form of government borrowing. To encourage investors to move away from physical gold, SGBs offer the most tax-efficient structure among all gold products. While the annual interest is taxable, the capital gains on maturity are fully exempt from tax. This makes SGBs particularly attractive for long-term investors.
The holding period plays a critical role in determining tax liability on gold. For physical and digital gold, long-term status is achieved only after 24 months, whereas for gold ETFs and mutual funds, it is achieved after 12 months. Many investors sell their gold too early, unknowingly triggering short-term capital gains tax, which is usually much higher. This mistake often eats into overall returns.
Many investors assume that all gold products are taxed the same way. Some believe digital gold is tax-free, while others incorrectly expect indexation benefits in gold ETFs. Failing to keep purchase invoices, ignoring GST while calculating cost, and not staying updated on tax rule changes are other common errors. These small oversights can later lead to a substantial tax burden.
From a tax perspective, gold is not just gold. Jewellery is treated as a consumer good, digital gold as a commodity, ETFs as financial instruments, and sovereign gold bonds as government securities. This is why the same metal takes on multiple identities under the tax system, each with its own set of rules.
Disclaimer: This article is for informational purposes only and does not constitute tax or investment advice. Tax laws are subject to change. Investors are advised to consult a qualified tax or financial advisor before making investment decisions.
