Do you intend to use gold as a kind of asset? This is how the tax system works

Do you have a particular fondness for gold or other precious metals? If so, you don’t have to limit your investment to actual gold. You may even spend money on their virtual representation. These consist of gold exchange-traded funds (ETFs) and sovereign gold bonds (SGBs).

It is important to remember that, with the exception of sovereign gold bonds (SGBs), the tax treatment of physical and digital gold is the same. Another important difference is that, in contrast to digital gold, which is cost-free, physical gold requires manufacturing and storage expenses.

How gold-backed instruments are taxed:
SGBs, or sovereign gold bonds: The income tax treatment of these instruments is distinct. They are subject to slab rate taxation if you sell them in the secondary market within three years after purchasing them.

On the other hand, they are subject to 20 percent long-term capital gains tax after indexation if they are sold after three years of ownership. Additionally, they are completely tax-free if you retain them until maturity.

It is important to remember that these bonds have an eight-year maturity duration, with an early redemption option after the fifth year. These bonds provide a 2.5 percent yearly income, which is taxed at the slab rate.

form of the gold tax rateAdditional expenses or revenue
SGBs: 20% long-term capital gains after three years2.5% of revenue
ETFs for goldSlab taxes apply to purchases made after March 31, 2023.No fees or revenue
Gold coinage20% long-term capital gain after three years of storage fees
Gold accessories20% long-term capital gain after three years in a locker plus charging
Exchange-traded funds (ETFs) for gold: Regardless of when you sell your ETFs, your earnings are taxed according to your income tax bracket.

According to AMFI statistics, there are 17 gold ETF schemes with a total of ₹28,529 crore in assets under management as of February 29, 2024.

Physical gold (coins and biscuits): When sold three years after purchase, it is subject to a long-term capital gains rate of twenty percent plus an eight percent cess. This tax treatment is identical to that of digital gold. Additionally, the profits are added to income and subject to slab-specific taxation upon sale within three years.

Since there is no need to make any charges, they are preferable to jewellery products. However, there are expenses to be saved, including storage fees, since items must be maintained in secure custody.

Jewellery items: These have a storage fee and end up costing more to keep in a locker than digital gold or gold coins due to the additional costs they incur, which run from 10 to 15 percent.