While digital gold, physical gold, and other forms of gold investments (such as gold ETFs, gold mutual funds, sovereign gold bonds, etc.) are all forms of gold, their taxation differs slightly based on the nature of the investment and the way they are held, bought, and sold. Below is a detailed comparison of how each type of gold investment is taxed under Indian tax laws:
1. Digital Gold
Digital gold is a relatively newer form of investment where you buy gold units online, which are backed by physical gold stored in vaults. You can redeem your digital gold either in the form of physical gold (coins or bars) or keep it as digital gold.
GST on Digital Gold:
GST (Goods and Services Tax) is levied at 3% on the purchase of digital gold since it is treated as a sale of gold. This is similar to the tax applied on physical gold.
If you redeem digital gold for physical gold (coins or bars), the 3% GST still applies to the value of the gold you receive.
Making Charges: If you convert digital gold into jewelry, the making charges for the jewelry will attract 5% GST.
Capital Gains Tax on Digital Gold:
Short-term Capital Gains (STCG): If you sell or redeem digital gold within three years of purchasing it, the gains are treated as short-term capital gains and are taxed at 15% (plus applicable cess).
Long-term Capital Gains (LTCG): If you sell or redeem digital gold after three years, the gains are classified as long-term capital gains and are taxed at 20% (with indexation benefits), plus applicable cess.
2. Physical Gold (Gold Coins, Bars, Jewelry)
Physical gold refers to gold coins, gold bars, and gold jewelry that you physically own and store. The taxation of physical gold depends on whether it's in the form of investment-grade gold or jewelry.
GST on Physical Gold:
Gold coins and bars: The GST rate on physical gold coins and gold bars is 3% on the purchase value.
Gold Jewelry: Gold jewelry attracts 5% GST on the value of the jewelry, which includes the making charges. The making charges will also be subject to GST.
Capital Gains Tax on Physical Gold:
Short-term Capital Gains (STCG): If you sell your physical gold (coins, bars, or jewelry) within three years of purchase, the gain is considered short-term and is taxed at 20% (with indexation benefits).
Long-term Capital Gains (LTCG): If you sell or redeem your physical gold after holding it for more than three years, it qualifies as long-term capital gains. The tax rate for LTCG on gold is 20% with the benefit of indexation (adjusting for inflation) to reduce the taxable gains.
Wealth Tax (on Physical Gold):
As of now, wealth tax is not applicable on gold in India, but holding gold jewelry or gold coins worth a significant amount can increase your overall taxable wealth under the Income Tax Act if it crosses the threshold limit.
3. Other Forms of Gold Investments
There are various other forms of gold investment products, each with its own taxation rules. These include Gold ETFs (Exchange-Traded Funds), Sovereign Gold Bonds (SGBs), and Gold Mutual Funds. Let’s look at each of these:
Gold ETFs (Exchange-Traded Funds)
Gold ETFs are financial securities that track the price of gold and are traded on stock exchanges. They are a form of paper gold, but you don’t own the physical gold directly.
GST on Gold ETFs: No GST is levied on Gold ETFs, as they are financial products rather than physical gold.
Capital Gains Tax on Gold ETFs:
Short-term Capital Gains (STCG): If Gold ETFs are sold within three years, the gains are treated as short-term and taxed at 15% (plus applicable cess).
Long-term Capital Gains (LTCG): If sold after three years, the gains are taxed at 10% without indexation benefits. However, you can still avail indexation if you sell gold ETFs in the form of units, which can be converted to physical gold.
Sovereign Gold Bonds (SGBs)
Sovereign Gold Bonds (SGBs) are government-backed bonds that are linked to the price of gold. SGBs are a safe investment option that allows you to earn gold-like returns without owning physical gold.
GST on Sovereign Gold Bonds: No GSTÂ is levied on SGBs since they are debt instruments issued by the Government of India.
Capital Gains Tax on Sovereign Gold Bonds:
Short-term Capital Gains (STCG): If you sell the SGBs within three years, the gains are taxed as short-term capital gains and are subject to tax at the applicable income tax slab rates.
Long-term Capital Gains (LTCG): If sold after three years, the gains are subject to LTCG tax at 20% with indexation benefits. Additionally, there is no capital gains tax on interest earned from SGBs if they are redeemed after the bond tenure (usually 8 years).
Gold Mutual Funds
Gold mutual funds invest in gold-related securities, such as gold mining stocks or gold ETFs. They are a convenient way for investors to gain exposure to gold without directly buying gold.
GST on Gold Mutual Funds: No GST is applicable on gold mutual funds since they are treated as financial products.
Capital Gains Tax on Gold Mutual Funds:
Short-term Capital Gains (STCG): If the mutual funds are sold within three years, the gains are taxed as short-term capital gains at 15% (plus applicable cess).
Long-term Capital Gains (LTCG): If sold after three years, the gains are taxed at 10%Â without indexation.
Comparison of Taxation on Digital Gold, Physical Gold, and Other Gold Investments
Type of Gold | GST on Purchase | Short-Term Capital Gains (STCG) | Long-Term Capital Gains (LTCG) | Other Tax Considerations |
Digital Gold | 3% GST | 15% (if held for less than 3 years) | 20% with indexation (if held for 3+ years) | No wealth tax; No GST on redemption (unless converted to jewelry) |
Physical Gold (Coins/Bars) | 3% GST (Coins/Bars); 5% GST (Jewelry) | 20% (if held for less than 3 years) | 20% with indexation (if held for 3+ years) | No wealth tax, but increases taxable wealth |
Gold ETFs | No GST | 15% (if held for less than 3 years) | 10% (if held for 3+ years) | No wealth tax |
Sovereign Gold Bonds (SGBs) | No GST | Taxed at applicable income tax slab (if held for less than 3 years) | 20% with indexation (if held for 3+ years); No tax on interest after maturity | No wealth tax |
Gold Mutual Funds | No GST | 15% (if held for less than 3 years) | 10% (if held for 3+ years) | No wealth tax |
Conclusion
Digital Gold and Physical Gold (coins, bars) are taxed similarly in terms of GST (3%) on purchase, but the capital gains tax is applicable based on the holding period (STCG if held for less than 3 years and LTCG if held for more than 3 years).
Gold ETFs, SGBs, and Gold Mutual Funds are treated as financial products, so they attract no GST. They are taxed based on the holding period as well, with short-term gains taxed at 15% and long-term gains at 10% for most gold-related securities.
SGBs have an added benefit: no capital gains tax on the interest earned if held until maturity.
Before making any gold investment, it’s important to understand these taxation rules and consult with a tax advisor to ensure that you are fully aware of the tax liabilities and advantages associated with each form of gold investment.