Gold has been a popular investment for centuries. It's seen as a safe haven during economic uncertainty. And many people have turned to it to diversify their investment portfolios because it offers stability and acts as a hedge against market volatility.
But when you sell your gold for profit, do you know how much tax you’ll pay?
The overall taxable rate on gold is 20.8%. But this rate doesn't apply to short-term capital gains on gold.
There are different tax rules depending on whether you're holding gold for short-term or long-term gains.
In this guide, you’ll learn about the capital gains tax on gold in India and how it applies to different forms such as physical gold, digital gold, and Sovereign Gold Bonds (SGBs) in India.
There are different tax implications that you should be aware of. Below are the selling gold tax implications:
STCG is applied when you sell gold within three years of buying it. The profit you make (sale price minus purchase cost) is added to your total income and taxed based on your income tax slab. For example, if you fall into the 30% tax slab, your profit will be taxed at 30%.
Old Rule for STCG (Short-Term Capital Gains)
Before the 2024 Budget, if you sold physical gold after holding it for three years, it was considered a short-term capital gain. The tax was calculated on any profit you made from the sale.
New Rule for STCG
After the 2024 Budget, the holding period for short-term capital gains (STCG) on physical gold has changed. Now, if you hold gold for less than two years, any gain will be taxed as STCG. This means you need to hold onto your gold for at least two years to qualify for long-term capital gains.
LTCG is applied when you sell gold after holding it for more than three years. The tax rate is 20%, but you can adjust the purchase price to account for inflation through indexation. You can avoid this tax if you use all the money from the sale to buy government tax-benefit bonds or invest in property within certain time frames.
Old Rule for LTCG (Long-Term Capital Gains)
Previously, if you sold physical gold after holding it for three years, you paid a 20% tax on your profit, and you could benefit from indexation, which helped reduce the taxable amount.
New Rule for LTCG
With the new rules from the 2024 Budget, if you sell your gold after holding it for two years, the long-term capital gains (LTCG) tax is now 12.5%. However, you will no longer receive any indexation benefits that were available before.
So, keep this in mind when planning your gold investments!
The tax rules for digital gold are similar to those for physical gold. The main difference is how you buy it—digital gold can be purchased online and stored safely in vaults provided by the insurer. However, regulatory bodies like the RBI or SEBI do not have control over this type of investment.
Digital gold can also come in the form of gold mutual funds and Gold Exchange-Traded Funds (ETFs), which allow you to invest in gold without holding the physical asset.
Short-Term Capital Gains (STCG) on Gold Mutual Funds
Old Rule
If you sold your gold mutual fund units within three years of buying them, the gains were added to your taxable income and taxed at your income tax slab rate.
New Rule
Starting April 1, 2025, the holding period for short-term capital gains will be shorter. However, the tax rate remains the same. For units purchased between April 1, 2023, and March 31, 2025, the gains will still be taxed at your income tax slab rate, no matter how long you hold them.
If you buy units after March 31, 2025, and sell them within two years, the gains will also be taxed at your income tax slab rate. But if you hold them for two to three years, those gains will be considered long-term gains and taxed at special rates.
Long-Term Capital Gains (LTCG) on Gold Mutual Funds
Old Rule
For units bought before March 31, 2023, and sold after three years, you would pay a 20% tax on the gains, plus the indexation benefit. But if the units were bought after April 1, 2023, the gains were added to your taxable income and taxed at your income tax slab rate.
New Rule
There is no special tax rate for gold mutual funds during this transition. For units purchased between April 1, 2023, and March 31, 2025, gains will be taxed at your income tax slab rate, regardless of how long you hold them.
If you buy units after March 31, 2025, and hold them for more than two years, a 12.5% tax will apply on the gains without the indexation benefit.
The same rules apply to capital gains on Gold ETFs regarding short-term and long-term gains as outlined in Budget 2024.
When you sell Sovereign Gold Bonds (SGBs) to the Reserve Bank of India (RBI) at maturity, there are no Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) taxes. This rule stays the same even after Budget 2024.
Selling SGBs Within Three Years
If you sell your SGBs before three years, the gains you make will be added to your taxable income. This means you'll pay taxes based on your income tax slab rates. This rule applies to SGBs sold before July 23, 2024.
Changes After Three Years
Previously, if you held your SGBs for more than three years, your gains would be taxed at 20%, with an indexation benefit.
New Changes in Budget 2024
Budget 2024 has changed the holding period for SGBs. Now, the short-term holding period is just 12 months
instead of 36 months.
If you hold SGBs for more than 12 months:
They are treated as long-term assets.
Any gains will be taxed at a lower rate of 12.5%, but this applies only if you sell them on or after July 23, 2024.
Gold derivatives are contracts based on gold, which means you can invest in them. You can buy these derivatives in the commodities market. The taxes on these derivatives are similar to the tax rates for commodity Futures and Options (F&O) trading.
You can also claim expenses against the profit you gained by selling gold derivatives and create a profit and loss (P&L) account to calculate your taxable income. This is because the money you have earned from these derivatives will be considered non-speculative business income.
Indians will often gift or inherit gold on special occasions. If you receive gold as a gift or inheritance from family or relatives, you will be exempt from paying income tax on that gold.
According to Section 56(2) of the Income Tax Act, if parents, spouses, or children gift gold ornaments or jewelry to each other, they are not liable for income tax.
However, if you receive gold from someone other than a relative, and its value is over Rs 50,000, you must pay taxes. This amount is considered income from other sources.
Additionally, gold jewelry received at your wedding is exempt from tax. But, if you decide to sell these gifts later, the government will tax you based on capital gains tax rates.
According to the Income Tax Act, non-resident Indians (NRIs) can invest in physical gold, digital gold, and paper gold. However, NRIs are not allowed to invest in Sovereign Gold Bonds due to RBI and FEMA rules. The tax rate on gold sales for NRIs is the same as for Indian residents.
But, NRIs must pay Tax Deducted at Source (TDS) on Gold Exchange-Traded Fund (ETF) or mutual fund redemptions.
If NRIs sell Gold ETFs held for less than 36 months, the gains are taxable at slab rates.
For long-term capital gains, the tax rate is a flat 20%.
So, understanding the capital gains tax on gold is essential for any investor looking to maximize their returns.
Always consult a tax advisor to ensure you understand all the details and make informed decisions.
After consulting, you can visit the Gujarat Gold Centre (GGC) for gold purchases.
GGC promises to provide the purest form of gold and silver. As a leading gold refinery and manufacturer, we aim to deliver the finest gold to our customers.
So, invest in gold with GGC and secure your financial future today!
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