Legal Reference
Section 112 (physical gold LTCG 12.5%), SGB maturity exempt Schedule II, SGB secondary sale LTCG 12.5%, gold ETF slab rate (Finance Act 2023), ITA 2025
1. Physical Gold: LTCG at 12.5% After Budget 2024
Physical gold (coins, bars, jewellery) is a capital asset under ITA 2025. Capital gains treatment:
- Held more than 24 months: LTCG at 12.5% without indexation (Budget 2024 removed indexation)
- Held 24 months or less: STCG at slab rate
- For gold purchased before 23 July 2024: grandfathering option — choose between 12.5% without indexation OR 20% with indexation (whichever gives lower tax)
2. Sovereign Gold Bond (SGB): Best Tax Treatment
SGB is the most tax-efficient way to hold gold:
- Maturity proceeds (after 8 years): FULLY EXEMPT from capital gains tax — Schedule II, ITA 2025
- Interest income: 2.5% p.a. — taxable at slab rate with TDS
- Premature redemption (after 5 years, through RBI window): capital gains tax applies at 12.5% (LTCG if held 12+ months)
- Secondary market sale on stock exchange: LTCG at 12.5% after 12 months; STCG at slab rate within 12 months
3. Gold ETF: Slab Rate from April 2023
Gold ETFs (Exchange Traded Funds tracking gold prices) are classified as non-equity funds under ITA 2025 — because they invest in physical gold, not equity. Finance Act 2023 changed: all gains from gold ETFs taxable at slab rate regardless of holding period. No LTCG benefit even after 10 years. This made gold ETFs less attractive from tax perspective vs SGBs.
4. Digital Gold: Same as Physical
Digital gold (bought through apps like Google Pay, Paytm etc.) is taxed the same as physical gold — 12.5% LTCG after 24 months (or grandfathering option), slab rate for STCG. The holding period and cost of acquisition are tracked from the purchase date on the digital gold platform.
5. Gold Mutual Funds (FoF)
Gold mutual funds (Fund of Funds investing in gold ETFs) are also classified as non-equity funds — taxed at slab rate from April 2023. No indexation or LTCG benefit. Same treatment as gold ETFs.
6. Inherited Gold: Not Taxable
Inherited gold is not taxable on receipt — inheritance is not a transfer under ITA 2025. However, the heir must use the original cost (to the previous owner) as cost of acquisition when they eventually sell. If the gold was acquired before 1 April 2001, cost can be taken as FMV on 1 April 2001.
7. Gold Comparison Summary
| Gold Type | LTCG Rate | Holding for LTCG | Tax on Income |
|---|
| Physical gold | 12.5% | 24 months | N/A |
| SGB (held to maturity 8 years) | Nil (EXEMPT) | 8 years | 2.5% interest — slab |
| SGB (sold on exchange) | 12.5% | 12 months | Interest — slab |
| Gold ETF | Slab rate | No LTCG benefit | N/A |
| Gold mutual fund | Slab rate | No LTCG benefit | N/A |
8. Why TaxClue
Gold investment tax treatment varies significantly by instrument — SGB is clearly best from a tax standpoint. TaxClue advises on gold taxation and ensures correct reporting in ITR. Contact us under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
What is the capital gains tax on gold?
Physical gold held more than 24 months: LTCG at 12.5% without indexation (Budget 2024 rate). Held 24 months or less: STCG at slab rate. For gold purchased before 23 July 2024, a grandfathering option lets you choose between 12.5% without indexation or 20% with indexation — whichever gives lower tax. Digital gold (from apps) is treated identically to physical gold.
Is SGB maturity proceeds taxable?
No. Sovereign Gold Bond (SGB) held to maturity (8 years) and redeemed through RBI is fully exempt from capital gains tax under Schedule II of ITA 2025. This is the best tax outcome for gold investment — complete tax-free gain at maturity. However, the 2.5% annual interest on SGB is taxable at slab rates. If SGB is sold on the stock exchange before maturity, capital gains tax applies (12.5% after 12 months).
How is gold ETF taxed?
Gold ETFs are non-equity funds under ITA 2025. From Finance Act 2023, all gains from gold ETFs are taxed at the investor slab rate regardless of holding period — no LTCG benefit even after 10 years. A 30% bracket investor pays 30% on gold ETF gains. This is significantly worse than physical gold (12.5% LTCG after 24 months) or SGB (fully exempt at maturity). Gold ETFs are now primarily used for short-term tactical gold exposure.
Is inherited gold taxable?
Inherited gold is not taxable on receipt — receiving an inheritance is not a transfer under ITA 2025. When the heir eventually sells the inherited gold, the cost of acquisition is the original purchase price paid by the deceased (or FMV on 1 April 2001 if acquired before that date). The holding period for the heir includes the period the deceased held it — so inherited gold held by the deceased for many years is typically LTCG on sale.
Which is the best way to invest in gold from a tax perspective?
From a pure tax standpoint: (1) SGB held to maturity (8 years) is best — completely tax-free capital gains; (2) Physical gold is second — 12.5% LTCG after 24 months; (3) Gold ETF and gold mutual funds are least efficient — slab rate taxation from April 2023. For investors comfortable with 8-year lock-in, SGB provides the best tax outcome. For those needing liquidity, physical gold or SGB sold on the exchange are better than ETFs.
