Master Gold & Silver Tax: Don't Lose Gains to 18.2% Income Tax

Synopsis Understanding gold and silver taxation is crucial for investors. Holding periods determine short-term or long-term capital gains tax. Strategic selling can save thousands. Sovereign Gold Bonds offer unique tax benefits. Reinvesting gains in property can exempt long-term gains. This guide clarifies the rules for physical assets, ETFs, and SGBs. The tax on gold and silver is influenced by two key factors- the type or nature of investment and how long you hold it. Depending on these factors, you might end up paying short term capital gain (STCG) or long term capital gain (LTCG) tax. Since the holding period plays a crucial role, the timing of redemption of gold and silver investments is critical for tax calculation. For example, if you make a profit of Rs 2 lakh by selling your physical gold/silver or exchange-traded fund (ETF) investments, redeeming them just a day earlier before the lower tax rate kicks in can cost you Rs 36,400 more in tax if you are in the 30% tax slab. How does that work? What are taxation rules for gold and silver investments based on their type and holding period? Can you save tax by reinvesting capital gains from gold and silver investments? Let’s find that out in this write-up. Also Read: Silver at record high: Will it crash or rally more in 2026? How to make the best of your investment in new year Tax on selling physical gold and silver, digital silver and gold Chartered accountant, Hitesh Jain, partner - direct tax, NA Shah Associates LLP, points out that tax has to be paid even when buying physical and digital gold or silver. “Buying physical gold, silver or digital gold/silver attracts a 3% GST on the value of the metal. In the case of jewellery, making charges are subject to an additional 5% GST,” says Jain. Jain explains that when physical and digital gold and silver assets are sold, capital gains taxation applies. Also Read: Income Tax Calculator “If held for more than 24 months, gains are long term and taxed at 12.5% without indexation. If held up to 24 months, gains are treated as short term and taxed at slab rates,” says Jain describing the rules, adding that while GST increases the purchase cost, it cannot be adjusted against income tax liability on capital gains. Tax rules for gold, silver investments (as per Deepashree Shetty, Partner, Global Mobility Services, Tax & Regulatory Services, BDO India) Category Instrument / Situation Holding period Tax treatment Tax rate Taxation of gold Physical gold (jewellery, bars, coins) Up to 24 months Short-term capital gains (STCG) As per income tax slab Taxation of gold Physical gold (jewellery, bars, coins) More than 24 months Long-term capital gains (LTCG) 12.5% (no indexation) Taxation of gold Sovereign Gold Bonds (SGBs) – interest NA Interest income As per income tax slab Taxation of gold Sovereign Gold Bonds (SGBs) – redemption at maturity 8 years Capital gains Fully exempt Taxation of gold Sovereign Gold Bonds (SGBs) – sold before maturity Up to 12 months STCG As per income tax slab Taxation of gold Sovereign Gold Bonds (SGBs) – sold before maturity More than 12 months LTCG 12.50% Market / digital mode Gold ETFs, Gold mutual funds, Silver ETFs, Silver mutual funds Up to 12 months STCG As per income tax slab Market / digital mode Gold ETFs, Gold mutual funds, Silver ETFs, Silver mutual funds More than 12 months LTCG 12.50% Physical & digital metals Physical or digital gold/silver – purchase NA GST on purchase 3% GST Physical & digital metals Physical or digital gold/silver – sale Up to 24 months STCG As per income tax slab Physical & digital metals Physical or digital gold/silver – sale More than 24 months LTCG 12.50% Gifting & inheritance Gift from specified relatives NA Tax-free Nil Gifting & inheritance Gift from non-relatives NA Taxable if value > ₹50,000 As per income tax slab Gifting & inheritance Inheritance NA No tax on receipt Nil Gifting & inheritance Sale after gift/inheritance As per original owner Capital gains As applicable Tax on Sovereign Gold Bond redemption The Reserve Bank of India (RBI) issued Sovereign Gold Bonds (SGBs) for a period of eight years. These bonds track the price of 999 purity gold. SGB investors get benefit in the form of gold price appreciation and a 2.5% annual interest on the principal. SGBs are also available for premature redemption after 5 years of their issue date. However, if SGB investors want, they can redeem them early also. Based on the holding period, their earnings will be taxed. Also Read: CA tells how your Rs 18,000 step up SIP can create Rs 2 crore corpus at just 10% return Riaz Thingna, partner, Grant Thornton Bharat, explains that the annual interest of 2.5% on SGBs is taxable under the head of Income from Other Sources at the applicable slab rates. Tax on SGB earnings after 8 years of holding period Thingna says capital gains on the redemption of these bonds by an individual at the end of the 8‑year maturity period are fully exempt from tax under Section 47(viic) of the Income Tax Act, 1961. Tax to be paid when investor redeems SGB investment before 12 months of holding period Thingna explains that in that case, SGBs are treated as listed securities and if they are sold on the stock exchange, they will be taxed at applicable slab rates if they are sold within 12 months of holding. If investor redeems SGB after 1-8 years holding period? Thingna says selling after holding SGBs for more than 12 months will qualify as LTCG and will be taxed at 12.5%. Taxation on gold and silver ETFs and mutual funds Gold and silver ETFs invest in high-quality physical gold and silver, and related investments to the same metals approved by Securities Exchange Board of India (SEBI). Gold and silver mutual funds, on the other hand, invest in the units of gold and silver ETFs. While the primary objective of such ETFs and mutual funds is to track the price of high-quality precious metals, both are treated the same way for tax purposes. Deepashree Shetty, partner, Global Mobility Services, Tax & Regulatory Services, BDO India, explains that gold or silver ETFs and mutual funds, sold in the period up to 12 months, are subject to STCG and will be taxed at slab rates. However, if they are held for more than 12 months, they will be subject to LTCG and will be taxed at a flat rate of 12.5%. Tax on gift and inheritance of gold and silver Gold and silver jewellery are sought-after gift options during weddings and family functions in India. Gold and silver are also priced possessions for many households in India. They use these precious metals as hedge against inflation and pass on to their next generation. But the recipient may need to pay tax in certain circumstances while receiving gold and silver as gifts. Shetty says if someone got silver and gold as gift from specified relatives, they won’t need to pay any tax. However, if they receive gold or silver as a gift from non-relatives and it’s value is more than Rs 50,000, it is taxable. Jain points out that in case of inheritance, there is no inheritance tax in India. If you sell inherited gold or silver, capital gains will be calculated using the original owner’s purchase cost, and the holding period includes the period for which the asset was held by the previous owner, says Jain. The other important question is whether there is a way to reinvest capital gains from gold and silver and save tax? Reinvestment of capital gains from gold and silver to save tax Jain says tax-saving options after selling gold and silver investments are available only for LTCG. “Under Section 54F, LTCG from selling gold or silver can be exempted if the net consideration is reinvested in a residential house property in India, subject to conditions such as ownership limits and timelines,” says Jain. “The maximum exemption is capped at Rs 10 crore. If the amount re-invested is lower than net consideration, then pro-rata exemption (i.e. capital gain/net consideration * amount reinvested) would be available,” says Jain explaining the conditions. Thingna says in order to get tax benefit from reinvestment of capital gains, the assessee must reinvest the entire net consideration in a residential house in India within 1 year before or 2 years or construct a residential house in India within 3 years from the date of transfer. “On the date of transfer of the original asset, the assessee must not own more than one residential house, other than the new house being purchased or constructed,” Thingna points out an important condition while explaining the tax benefit condition from reinvesting LTCG from gold and silver. How selling gold and silver investments one day early can cost you Rs 36,400 extra in tax? If you sell physical gold or silver a day before 24 months of the holding period, your gains will be treated as STCG. In the second condition, if you redeem your gold or silver ETF or mutual fund investments a day less than 12 months, your gains will be treated as LTCG. In either condition, if your income falls in the 30% tax slab, you may end up paying Rs 36,400 extra in your tax. Thingna explains it with an example- Tax treatment of Rs 2 lakh as STCG and LTCG (for taxpayer in 30% tax slab) Particulars Person 1 (LTCG on Gold ETF) Person 2 (STCG on Gold ETF) Type of Gain Long‑Term Capital Gain (held >12 months) Short‑Term Capital Gain (held ≤12 months) Applicable Section Section 112 (12.5% LTCG rate for listed securities) Section 48 + slab rate (Section 111A not applicable to Gold ETFs) Capital Gain Amount ₹ 2,00,000 ₹ 2,00,000 Tax Rate 12.50% 30% (slab rate) (assumed highest slab rate) Tax Amount ₹ 25,000 ₹ 60,000 Health & Education Cess (4%) ₹ 1,000 ₹ 2,400 Total Tax Payable ₹ 26,000 ₹ 62,400 (Catch all the Personal Finance News, Breaking News, Budget 2025 Events and Latest News Updates on The Economic Times.) Subscribe to ET Prime and read the ET ePaper online. ...more