Tax on Digital, Physical & Paper Gold in India | Share India
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The practice of investing in gold is fairly common. Depending on their financial objectives, people invest money in various types of gold. The earliest type of gold investing is physical gold. However, there are now a variety of methods for investing in gold. Jewelry, gold coins, gold ETFs, sovereign gold bond taxation, digital gold, and other derivatives are all options for investors. Tax treatment varies depending on the type of gold investment.  Let's examine the tax on gold investment in India.


Taxation on Digital Gold


When it comes to taxation on profits, investing in digital gold is considered in a manner comparable to owning real gold.


Owning digital gold is the newest investing strategy that has gained enormous appeal among young people. Investors in digital gold should be aware of the relevant taxability given the ease of affordability and convenience of investment. 


Digital gold assets must be owned for less than 36 months to guarantee that returns are not immediately taxed. Long-term capital gains would be subject to an upfront 20% tax on returns, plus a surcharge and 4% cess. 


Therefore, be prepared to pay these fees upfront if you intend to cash in your investment after a period of, say, 5 years. The holding period again influences how much tax you would have to pay back. Keep in mind that taxation on digital gold can be complicated and subject to wide regional variations.


Taxation on Investments in Physical Gold


Selling actual gold will subject the seller to 20% in taxes and a 4% long-term capital gains cess.

If you know the difference between short-term and long-term capital gains, calculating taxes on buying gold is easy. 


In the former, the assets must be sold within 36 months of purchase. Long-term capital gains will be recognized if you sell them at a later date.


When it comes to STCG, the proceeds from a gold sale are added to your yearly income and taxed at the appropriate income tax slab rate.


On the other hand, physical gold LTCG investors will be required to pay 20% of the returns in taxes plus any necessary surcharges. Additionally, these transactions are subject to a 4% cess with indexation advantages. Finally, while purchasing actual gold, you would also be required to pay a Goods and Services Tax. As is clear, investing in actual gold is subject to a variety of taxes.


Taxation of Investments in Paper Gold


Sovereign gold bonds (SGB) and gold mutual funds are examples of paper gold. When investing in paper gold, the investor only has a paper copy of the real metal. The tax regulations for paper gold are listed below.


Sovereign Gold Bond Taxation

  • Interest on SGBs, or Sovereign Gold Bonds, is taxed at slab rates like IFOS income.
  • Sales of SGB after eight years are not subject to tax.
  • Long Term Capital Gains are earned on the sale of SGB after 5 years but before the end of 8 years, and they are taxed at 20% with the advantage of indexation.
  • Additionally, the tax rate on income from the sale of SGB is 10% without the benefit of indexation if the sale occurs after a year but before five years.


Gold ETFs and Mutual Funds Taxation

  • Income Head - Income from capital gains is revenue from the selling of gold mutual funds or gold ETFs. It is a Long Term Capital Gain (LTCG) if the taxpayer sells gold mutual funds or ETFs after owning them for more than three years. A short-term capital gain (STCG) occurs when a taxpayer sells gold mutual funds or exchange-traded funds (ETFs) after owning them for less than three years.
  • Tax Rate - With the advantage of indexation, the taxpayer should pay income tax at slab rates on STCG and 20% on LTCG.


Taxation of Gold Derivatives Returns


When the concerned business's annual total turnover is less than Rs. 2 crores, 6% of the returns are claimed as taxes.


Returns from gold derivatives can be claimed as business income, which helps reduce the tax liability associated with such transactions. You wouldn't need to keep an accurate record of the company's books and accounts in order to benefit from the provisions of Section 44AD of the Income Tax Act.


Your business is allowed to keep the tax expense on gold derivatives to only 6% under this hypothetical tax plan. The sole need is that the company's annual revenue cannot exceed Rs. 6 crore. The total of each transaction's profit and loss makes up the annual turnover.




Although gold is a reliable investment, there are risks involved. The taxation on digital gold investments varies depending on the sort of gold you invest in. The tax on physical gold is comparable to a small number of alternative gold investment strategies, though. Like equities and bonds, gold is not a risk-free investment since it varies in value depending on a number of international economic variables. All investment portfolios should be diversified, and gold may achieve this, especially during market downturns when the price of the metal tends to climb. Additionally, you can learn more about income tax on intraday trading profit with Share India to ensure you understand your tax obligations as a trader.


Frequently Asked Questions (FAQs)

The term "digital gold tax" describes the tax consequences and liabilities related to purchasing or trading digital gold products, such as digital gold tokens or cryptocurrencies backed by physical gold.

Sovereign gold bond taxation might fluctuate depending on different circumstances. When you sell the bonds, you could have to pay capital gains tax as well as taxes on the interest income you received from them.

Value-added tax (VAT) or sales tax could apply when buying gold in several nations. For some gold items, however, exemptions or discounted prices could be available.
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