Income-tax rules: Capital gains taxation on digital, paper, physical and inherited gold for Indians and NRIs, explained

Income-tax rules: Profits or capital gains generated from sale of your digital gold, paper gold (which includes gold ETFs, gold mutual funds and sovereign gold bonds) and physical gold assets are taxed on short-term and long-term basis in India.

Notably, there is no tax for simply owning gold for personal purpose, the tax comes into play if and when you sell your gold for a profit. Thus, you are required to report capital gains from your gold investments in your income-tax returns (ITR) under specific schedules depending on the type of investment (physical, digital, or paper gold), according to a Clear Tax report.

What are the different types of gold investments?

Digital gold: Digital gold is purchased online, and the issuer stores them in a vault on your behalf. Notably, the investment is self-regulated with no oversight from either the Reserve Bank of India (RBI) or the Securities and Exchange Board of India (SEBI).

Gold ETFs: A commodity focused mutual fund that invests in gold in the domestic market. Investors can purchase units which are each equivalent to 1 gram of gold and traded similar to equities on the stock exchange. It offers returns comparable to physical gold with the convenience of stock trading for liquidity.

Gold mutual funds: These are focused MFs that invest in gold ETFs. Investors can purchase units through particular fund houses or online investment platforms. They track gold prices in real-time gold prices and are uniform across India, regardless of which city you reside.

Sovereign Gold Bonds: SGBs are government securities denominated in grams of gold, issued by the RBI. They aim to give investors the benefit of capital appreciation backed by government security and without extra charges attached to traditional gold holdings. Notably, the scheme has been paused in effect amid concerns over high borrowing and no new tranches have been announced for FY27.

Physical gold: Indian households held a cumulative $5 trillion worth of physical gold in value till March, as per a research report by Kotak Institutional Equities. This is largely in form of gold jewellery, gold biscuits, coins or bars for personal, cultural and traditional reasons.

Inherited gold: In India, given the traditional and cultural significance of gold, many residents may also inherit physical gold in form of jewellery, coins or biscuits as gifts for their weddings, during festivals or on other occasions.

Taxation rules for capital gains on gold in India

• Short-term Capital Gains (STCG) is applicable for physical, digital, or paper gold sold within 24 months (two years) at your income tax slab rate.
• While profits from physical, digital and paper gold sold after 24 months (more than two years holding) is taxed as Long-term Capital Gains (LTCG) at 12.5%. This is down from 20% with no indexation advantage.
• Taxpayers can claim LTCG exemption for physical, digital and paper gold investments under Sections 54F and 54EC of the Income Tax Act 1961 by reinvesting the capital gains made into a residential house.

Gold taxation: What are the rules for NRIs?

• Non-resident Indians are allowed to invest in physical, digital and paper gold in India, except for Sovereign Gold Bonds, in accordance with RBI and the Foreign Exchange Management Act (FEMA) norms.

• STCG is applicable for physical, digital, or paper gold sold within 24 months (two years) at your income tax slab rate.
• While profits from physical, digital and paper gold sold after 24 months (more than two years holding) is taxed as LTCG at 12.5%, same as Indian residents.

Do I have to pay income tax on inherited gold?

Taxpayers can claim exemption on gold received as gift or as inheritance from family members or relatives under Section 56(2) of the Income Tax Act. This will include gift or inheritance from parents, children and spouse. Further, gold received as gift for weddings is also tax-free.

However, gold worth over ₹50,000 received from anyone other your family and relatives specified above is subject to capital gains tax and must be declared under ‘Income from other sources’ in your ITR.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.