To calculate capital gains tax on gold, the holding period determines whether the gain is short-term or long-term.
Short-term capital gains calculation
- Short-term capital gains = Selling price – Purchase price
- The gain is added to the seller’s total taxable income and taxed according to the applicable income tax slab rate.
Long-term capital gains calculation
- Long-term capital gains = Selling price – Indexed cost of acquisition
- Indexation adjusts the purchase price for inflation using the cost inflation index.
- Long-term capital gains are taxed at 20 percent with indexation benefits.
For example, if gold was purchased for Rs. 50,000 and sold for Rs. 1,00,000 after five years, the indexed cost could be Rs. 70,000. The taxable long-term capital gain would be Rs. 30,000, taxed at 20 percent.
Long term capital gains tax on gold investments
Gold held for more than 36 months is subject to long-term capital gains tax. The long-term capital gains tax rate is 20 percent with indexation, reducing taxable gains by accounting for inflation.
Indexation benefits significantly lower the tax burden compared to short-term gains. The indexed purchase price is calculated using the cost inflation index provided by the Income Tax Department.
Investors in gold ETFs, sovereign gold bonds, and digital gold also fall under long-term capital gains tax rules when held for more than three years. Unlike physical gold, sovereign gold bonds offer tax exemption if held until maturity. Investors should consider these factors when deciding between different forms of gold investments to optimise returns and reduce tax liability.
Income tax on gold sale in India
The
income tax on gold sale in India depends on the duration for which the gold was held before selling. If gold is sold within three years, the profit is treated as short-term capital gains and added to the individual’s taxable income. It is then taxed as per the applicable income tax slab rate.
For gold held beyond three years, the profit is taxed under long-term capital gains at 20 percent with indexation benefits. Selling inherited gold is also taxed under long-term capital gains, but no tax applies when receiving gold as a gift. However, if the total value of gifts exceeds Rs. 50,000 in a financial year, the recipient must pay tax.
What is the tax rate for long-term capital gains on gold?
- Long-term capital gains on gold are taxed at 20 percent with indexation benefits.
- Indexation reduces taxable gains by adjusting the purchase price for inflation.
- Sovereign gold bonds are tax-free if held until maturity.
- Digital gold and gold ETFs are subject to long-term capital gains tax after three years.
- Short-term gains, if sold before three years, are taxed based on the individual’s income tax slab.
When is capital gains tax applicable on gold?
- Selling physical gold, including jewellery, coins, and bars, attracts capital gains tax.
- Selling gold ETFs or digital gold results in long-term capital gains tax after three years.
- Selling inherited gold is taxable only when sold, not when received.
- Selling sovereign gold bonds is exempt from tax if held until maturity.
- Receiving gold as a gift is tax-free if received from relatives, but taxable if from non-relatives.
Capital gains tax rules for gold sale and investment
Capital gains tax applies to all forms of gold, including physical gold, gold ETFs, sovereign gold bonds, and digital gold. Short-term gains are taxed as per the individual’s income tax slab, while long-term gains attract 20 percent tax with indexation. Gifts of gold from relatives are tax-exempt, but tax applies when selling inherited gold.
Exemptions on capital gains tax for gold investments
Investors can minimise capital gains tax on gold investments by using exemptions under Section 54F and Section 54EC of the Income Tax Act. Under Section 54F, if the proceeds from selling gold are reinvested in a residential property, the capital gains tax can be waived. The new property must be purchased within two years or constructed within three years from the sale date. The investor should not own more than one residential property at the time of reinvestment, apart from the newly acquired one. If the property is sold within three years, the exemption is revoked.
Section 54EC provides another exemption by allowing investment in capital gains bonds issued by REC (Rural Electrification Corporation) or NHAI (National Highways Authority of India) within six months of the gold sale. The maximum exemption allowed is ₹50 lakh. These bonds have a lock-in period of five years and do not offer liquidity before maturity. By utilising these exemptions, investors can effectively reduce their tax liability and maximise their returns from gold investments.
Difference between short and long-term capital gains on gold
Understanding the difference between short-term and long-term capital gains on gold is crucial for tax planning and investment decisions. Here are the key distinctions:
- Holding period – Short-term capital gains (STCG) apply if gold is held for less than three years, whereas long-term capital gains (LTCG) apply if gold is held for more than three years.
- Taxation rate – STCG is taxed as per the investor’s applicable income tax slab, which can range from 5% to 30%. In contrast, LTCG is taxed at a flat rate of 20% with indexation benefits.
- Indexation benefit – Only LTCG enjoys indexation, which adjusts the purchase price for inflation, effectively reducing the taxable amount. This helps lower the overall tax liability.
- Applicability to digital gold – Investments in digital gold, gold ETFs, and sovereign gold bonds (SGBs) follow the same tax treatment as physical gold in terms of short-term and long-term capital gains.
- Exemptions – LTCG tax can be avoided by reinvesting proceeds in residential property under Section 54F or in capital gain bonds under Section 54EC.
By understanding these factors, investors can strategically plan their gold investments and optimise their tax liability.
Tips to save capital gains tax on gold transactions
- Holding gold for more than three years qualifies for lower long-term capital gains tax rates.
- Investing in sovereign gold bonds, as they are tax-free upon maturity, reduces tax liability.
- Reinvesting in property under Section 54F provides tax exemptions.
- Opting for capital gains bonds helps avoid taxation on gold sale proceeds.
- Gifting gold to family members is a tax-free strategy when received from relatives.
How to minimize capital gains tax on gold sales legally?
Minimising capital gains tax on gold sales legally requires careful financial planning. When selling gold, the tax liability depends on the holding period. Gold held for less than three years is subject to short-term capital gains tax, taxed as per your income slab. Gold held for over three years qualifies for long-term capital gains tax (LTCG) at 20% with indexation benefits.
To reduce tax liability, consider these strategies:
- Indexation benefits – If selling after three years, indexation adjusts the purchase price for inflation, reducing taxable gains.
- Capital gains exemption – Reinvesting the proceeds in government-approved bonds under Section 54F or 54EC can help avoid LTCG tax.
- Gifting gold – Transferring gold to family members in lower tax slabs before selling may reduce the overall tax burden.
- Using a gold loan – Instead of selling, pledge gold to avail funds through a gold loan calculator and avoid immediate tax liabilities.
By following these legal methods, investors can effectively minimise capital gains tax on gold sales. Consulting a financial advisor ensures compliance with tax laws while optimising returns.
