As gold prices have touched record highs, many families are perhaps tempted to unlock some of that legacy. Whether it is to meet financial goals, diversify portfolios, or simply take advantage of the high prices, selling gold seems like a smart move. But before you do, there’s one crucial aspect to consider — tax. Gold gains are taxed.
When you sell physical gold be it jewellery, coins, or biscuits, the profit you earn is taxed as capital gains. The rate of taxation depends on the holding period of such gold. If you have held the gold for more than 24 months, your profit is classified as a long-term capital gain and taxed at 12.5%. If you sell before that, it’s considered a short-term capital gain, added to your income and taxed at your applicable income tax slab rate.
The same logic applies to digital gold, which has become a modern way to invest without worrying about storage or purity. For gold ETFs and mutual funds, too, taxation mirrors physical gold, i.e., 12.5% for long term capital assets.
Sovereign Gold Bonds (SGBs), however, come with a unique advantage.
If held till maturity (typically eight years), your capital gains are completely tax-free. The only taxable part is the annual interest, which is added to your income. Gold derivatives traded in the commodity market, however, are treated differently. The profits are taxed as non-speculative business income, and investors can deduct expenses incurred while trading.
Inherited gold
Gold inherited under a Will or otherwise is exempt from tax. However, when you sell such gold later, the capital gains tax applies. The holding period of the previous owner is taken into account to determine whether it’s a short-term or long-term gain to determine its taxability.
Taxability for NRIs
Non-resident Indians (NRIs) are allowed to invest in physical, digital, and paper gold, except for SGBs, as per RBI and FEMA norms. The tax rates for NRIs are the same as for Indian residents. However, TDS applies to gold ETFs or mutual fund redemptions.
A word on advance tax
It’s wise to deposit the tax on capital gain in advance instead of waiting for the financial year to end. Paying advance tax helps you avoid interest under Sections 234B and 234C of the Income Tax Act, which apply when tax dues exceed `10,000 in a year.
Gold has always symbolised security, prosperity, and pride in Indian households. Now, with prices glittering at historic highs, selling a portion of your holdings could be a smart financial decision, provided you do it with tax awareness. Before you part with your gold, make sure your purchase bills are in order, your holding period is clear, and your tax obligations are met in advance. Because in the end, understanding the tax implications is the smartest way to make your gold truly shine.
The writer is partner, Nangia & Company. Inputs from Neetu Brahma