Income Tax Rule Physical Gold, Digital Gold & Paper Gold | ETFs, Mutual Funds & Sovereign Gold Bonds


Income tax calculator: Gold investment is considered auspicious on Akshaya Tritiya. Today, there are various forms of yellow metal that an investor look at while making an investment decision. Those forms are โ€” physical gold, paper gold and electronic gold. Physical gold is a traditional form of gold investment whereas paper gold and electronic gold are new forms of precious metal investment.

Income tax rule on physical gold

Speaking on income tax rule on physical gold, Archit Gupta, Founder & CEO at Clear said, “Gold Investments are classified as physical gold, digital gold and paper gold. The taxation of physical gold, such as jewelry and coins, depends on the holding period. For example, if you sell physical gold within three years of purchase, you incur short term capital gains (STCG). The short term capital gains are added to your total taxable income and taxed according to your income tax slab. However, long term capital gains on selling physical gold after three years are taxed at 20.8 per cent (including cess) with the indexation benefit.”

How investment on digital gold is taxed

“Digital gold is taxed at the same rate as physical gold and depends on the holding period. Capital gains on digital gold held for less than three years are taxable at applicable income tax slab rates. However, long term capital gains tax is applicable on selling digital gold after three years at 20.8% (including cess) with the indexation benefit. Indexation allows taxpayers to recalculate the investment’s purchase price after adjusting for inflation, thereby reducing the tax outgo,” said Archit Gupta of Clear.

Income tax rule on paper gold

Paper gold includes Gold ETFs, Gold Mutual Funds and Sovereign Gold Bonds (SGBs). Gold ETFs and Gold Mutual Funds are taxed similarly to physical gold. However, SGBs have different taxation rules.

“Investors receive interest of 2.5 per cent per annum from SGBs, which is added to the investor’s taxable income and taxed according to the applicable income tax slab. SGBs have a maturity period of eight years. The capital gains one makes from SGBs, if held till maturity, are tax-free,” said Archit Gupta.

However, investors can prematurely redeem SGBs after five years. If you redeem SGBs between five to eight years, the gains are considered long-term capital gains. It is taxed at 20.8% (including cess) with the indexation benefit.

Investors can buy and sell SGBs over the stock exchange. If SGBs are sold before three years, the capital gains are added to the investor’s income and taxed based on the applicable income tax slab. Moreover, the capital gains earned by investors on selling SGBs over the stock exchange after three years are long-term and taxed at 20% with indexation benefit.

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