Capital Gains Tax on Gold

Understanding capital gains tax on gold

Capital gains tax on gold is applied when you sell gold jewellery, coins, or bars and make a profit. In India, how much tax you pay depends on how long you have held the gold. If you sell it within 36 months, it is considered a short-term capital gain. If you hold it for more than 36 months, it becomes a long-term capital gain. Long-term gains are taxed at a lower rate and come with indexation benefits, which help reduce your taxable amount. This tax applies not just to physical gold but also to gold ETFs, digital gold, and sovereign gold bonds.

What is the capital gains tax on gold?

When you sell gold and earn a profit, capital gains tax applies. For gold sold within 36 months, the profit is added to your income and taxed based on your income slab. For gold held over 36 months, it is taxed at 20% with indexation benefits. This rule covers all types of gold—jewellery, coins, bars, ETFs, and digital gold. However, gold received as a gift from family is not taxed until it is sold. Knowing these rules helps you plan your gold transactions better and reduce your tax burden. 

How to calculate short and long-term capital gains on gold?

To calculate capital gains tax on gold, the holding period determines whether the gain is short-term or long-term.
 

Short-term capital gains calculation

• Short-term capital gains = Selling price – Purchase price
• The gain is added to the seller’s total taxable income and taxed according to the applicable income tax slab rate.

Long-term capital gains calculation

• Long-term capital gains = Selling price – Indexed cost of acquisition
• Indexation adjusts the purchase price for inflation using the cost inflation index.
• Long-term capital gains are taxed at 20 percent with indexation benefits.

For example, if gold was purchased for Rs. 50,000 and sold for Rs. 1,00,000 after five years, the indexed cost could be Rs. 70,000. The taxable long-term capital gain would be Rs. 30,000, taxed at 20 percent.
 

Long term capital gains tax on gold investments

Gold held for more than 36 months is subject to long-term capital gains tax. The long-term capital gains tax rate is 20 percent with indexation, reducing taxable gains by accounting for inflation.

Indexation benefits significantly lower the tax burden compared to short-term gains. The indexed purchase price is calculated using the cost inflation index provided by the Income Tax Department.

Investors in gold ETFs, sovereign gold bonds, and digital gold also fall under long-term capital gains tax rules when held for more than three years. Unlike physical gold, sovereign gold bonds offer tax exemption if held until maturity. Investors should consider these factors when deciding between different forms of gold investments to optimise returns and reduce tax liability. 

Pro tip: Planning to make the most of your gold? Check your gold loan eligibility to know how much you can borrow with ease and transparency.
 

Income tax on gold sale in India

The income tax on gold sale in India depends on the duration for which the gold was held before selling. If gold is sold within three years, the profit is treated as short-term capital gains and added to the individual’s taxable income. It is then taxed as per the applicable income tax slab rate.

For gold held beyond three years, the profit is taxed under long-term capital gains at 20 percent with indexation benefits. Selling inherited gold is also taxed under long-term capital gains, but no tax applies when receiving gold as a gift. However, if the total value of gifts exceeds Rs. 50,000 in a financial year, the recipient must pay tax.
 

What is the tax rate for long-term capital gains on gold?

• Long-term capital gains on gold are taxed at 20 percent with indexation benefits.
• Indexation reduces taxable gains by adjusting the purchase price for inflation.
• Sovereign gold bonds are tax-free if held until maturity.
• Digital gold and gold ETFs are subject to long-term capital gains tax after three years.
• Short-term gains, if sold before three years, are taxed based on the individual’s income tax slab. 

When is capital gains tax applicable on gold?

• Selling physical gold, including jewellery, coins, and bars, attracts capital gains tax.
• Selling gold ETFs or digital gold results in long-term capital gains tax after three years.
• Selling inherited gold is taxable only when sold, not when received.
• Selling sovereign gold bonds is exempt from tax if held until maturity.
• Receiving gold as a gift is tax-free if received from relatives, but taxable if from non-relatives.

Capital gains tax rules for gold sale and investment

When you sell gold and make a profit, capital gains tax comes into play. This applies to all forms of gold—whether it is jewellery, coins, bars, gold ETFs, sovereign gold bonds, or even digital gold. If you sell your gold within 36 months, the profit is treated as short-term capital gains and taxed according to your income slab. However, if you hold it for more than 36 months, it is considered a long-term gain and taxed at 20% with indexation benefits. Gold received as a gift from relatives is tax-free, but tax applies when you sell inherited gold.
 

Exemptions on capital gains tax for gold investments

Investors can minimise capital gains tax on gold investments by using exemptions under Section 54F and Section 54EC of the Income Tax Act. Under Section 54F, if the proceeds from selling gold are reinvested in a residential property, the capital gains tax can be waived. The new property must be purchased within two years or constructed within three years from the sale date. The investor should not own more than one residential property at the time of reinvestment, apart from the newly acquired one. If the property is sold within three years, the exemption is revoked.

Section 54EC provides another exemption by allowing investment in capital gains bonds issued by REC (Rural Electrification Corporation) or NHAI (National Highways Authority of India) within six months of the gold sale. The maximum exemption allowed is ₹50 lakh. These bonds have a lock-in period of five years and do not offer liquidity before maturity. By utilising these exemptions, investors can effectively reduce their tax liability and maximise their returns from gold investments.

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Difference between short and long-term capital gains on gold

Understanding the difference between short-term and long-term capital gains on gold is crucial for tax planning and investment decisions. Here are the key distinctions:
 

• Holding period – Short-term capital gains (STCG) apply if gold is held for less than three years, whereas long-term capital gains (LTCG) apply if gold is held for more than three years.
• Taxation rate – STCG is taxed as per the investor’s applicable income tax slab, which can range from 5% to 30%. In contrast, LTCG is taxed at a flat rate of 20% with indexation benefits.
• Indexation benefit – Only LTCG enjoys indexation, which adjusts the purchase price for inflation, effectively reducing the taxable amount. This helps lower the overall tax liability.
• Applicability to digital gold – Investments in digital gold, gold ETFs, and sovereign gold bonds (SGBs) follow the same tax treatment as physical gold in terms of short-term and long-term capital gains.
• Exemptions – LTCG tax can be avoided by reinvesting proceeds in residential property under Section 54F or in capital gain bonds under Section 54EC.

By understanding these factors, investors can strategically plan their gold investments and optimise their tax liability.
 

Tips to save capital gains tax on gold transactions

• Holding gold for more than three years qualifies for lower long-term capital gains tax rates.
• Investing in sovereign gold bonds, as they are tax-free upon maturity, reduces tax liability.
• Reinvesting in property under Section 54F provides tax exemptions.
• Opting for capital gains bonds helps avoid taxation on gold sale proceeds.
• Gifting gold to family members is a tax-free strategy when received from relatives.