Gold buying on Dhanteras: Don’t ignore these tax rules before you buy or sell this festive season

With gold prices at lifetime highs and the festive season in full swing, Indians are once again turning to the yellow metal — whether as a symbol of prosperity, a safe-haven investment, or a timeless gift. But before you rush to buy or sell, it’s crucial to remember that gold gains are not tax-free. From jewellery to ETFs and Sovereign Gold Bonds, each investment route has distinct tax implications that can significantly affect your actual returns.

Physical gold

Profits from selling physical gold are treated as capital gains. If sold within two years, they qualify as short-term capital gains (STCG) and are taxed according to your income slab. For holdings beyond two years, the gains become long-term (LTCG) and are taxed at 12.5% plus surcharge and cess under the new tax rules effective July 23, 2024.

Earlier, investors could benefit from indexation, which adjusted purchase costs for inflation, thereby lowering taxable gains — but this benefit has now been removed. Additionally, buyers pay 3% GST on gold and up to 5% on jewellery making charges.

“Profits from the sale of gold jewellery are treated as capital gains, with taxation determined by the holding period,” says Dinkar Sharma, Company Secretary and Partner at Jotwani Associates. He adds that maintaining bills, invoices, or valuation certificates is essential to prove the cost and date of acquisition in case of scrutiny.

Sovereign Gold Bonds (SGBs)

Issued by the Reserve Bank of India, SGBs offer one of the most tax-friendly gold investments. The 2.5% annual interest earned is taxable under ‘Income from Other Sources’. However, the capital gains on redemption after maturity (8 years) are completely tax-exempt.

If SGBs are sold before maturity on exchanges, gains within 36 months are treated as STCG (taxed as per slab), while those after 36 months are LTCG (taxed at 20% with indexation). This structure strongly favours long-term, formal gold investments over physical holdings.

Gold ETFs and Gold Mutual Funds: Easy but Taxable

Gold ETFs and gold mutual funds are taxed like non-equity mutual funds.

STCG: Taxed at the individual’s slab rate if held for up to 36 months.

LTCG: Taxed at 20% with indexation beyond 36 months.

Dividends: Fully taxable at the investor’s slab rate.

These options provide convenience, liquidity, and safety compared to physical gold, but their tax structure remains largely the same.

Inherited gold

Inherited gold is not taxable at the time of inheritance. However, when it’s sold, capital gains tax applies based on the original purchase date and cost of the previous owner. Indexation benefits are available from the original acquisition date, ensuring fair taxation and avoiding double taxation.

TDS and TCS

While ordinary gold purchases don’t attract TDS, large transactions do fall under reporting rules.

TCS (Tax Collected at Source): Purchases above ₹10 lakh in a financial year trigger TCS under Section 206C(1H). PAN disclosure is mandatory.

TDS for Businesses: Businesses crossing prescribed turnover limits must deduct applicable TDS on sales under the Income Tax Act.

These measures enhance transparency and curb unaccounted transactions in the bullion market.

The gold taxation system in India is designed to reward long-term, traceable investments through SGBs while tightening oversight on physical gold deals. With festive demand and record prices driving buying interest, investors should focus not just on the glitter — but on tax clarity, documentation, and compliance. Smart planning today can help you keep more of your gains tomorrow.