Gold Taxability and its Holding Limits

This document covers

1. Different types of Gold
2. Permissible Limits
3. Taxability of Gold
4. Income Tax on Gold
5. Tax Saving on Sale of Gold
6. Gold Monetisation Scheme (GMS), 2015

1. Different types of Gold Investments

Gold can be invested in multiple forms and below are the some of the forms.

1. Physical Gold: These can be invested in the form of jewellery, coins, bars or gold savings scheme.
2. Sovereign Gold Bonds (SGB):
• These are issued by the Reserve Bank of India (RBI) under the Sovereign Gold Bond Scheme, 2015. This scheme is intended to reduce the demand for physical gold and consequently reduce the foreign exchange outflow due to import of gold.
• These bonds are issued periodically by RBI and the bonds bear interest rate of 2.5% and interest will be credited semi annually to the investor and the tenor of bond is 8 years
• Sovereign Gold Bonds helps in appreciation of capital and eliminates the risk of storage
3. Gold Exchange Traded Funds (ETF):
• Gold ETF is a commodity based mutual fund that invests in assets like Gold. Gold ETF’s will be listed and traded on stock exchange and its functioning is similar to stocks
• Gold ETF’s are units representing physical gold which may be in paper or dematerialized form. Gold ETF’s combine the flexibility of stock investment and simplicity of gold investments
• Gold ETF’s require a demat account to invest
4. Gold Funds: Gold funds are type of mutual fund investments that invests in Gold or bullion. Gold funds can be invested without any demat account. Gold mutual funds are perfect hedge against inflation and ideal when the stock market is falling
5. Gold Derivatives: Gold derivatives are financial instruments whose prices are derived from physical gold. Gold Derivatives are of 2 types i.e., gold futures and gold options.
6. Digital Gold: Digital Gold was introduced in 2010 by NSE India to suit Indians who like to invest in gold in electronic form and can be converted into physical form when they need. Investors can invest even in fraction of amounts starting from Rs 1

2. Permissible limits for holding gold jewellery or ornaments

1. Acquired thru proper source of investment or will or inheritance:CBDT has clarified that there is no limit on holding of gold jewellery or ornaments if acquired from explained sources of income or through will or inheritance or gift. However, the income of the assessee should be inline with the gold held. Below is the documentation required
• If purchased: Proper invoice for purchase of gold and the source of income for purchase of that gold should be explained
• If acquired under inheritance or will: Will copy or Gift copy or other documents should be produced.
2. At the time of Search: Gold within the following limit will not be seized even at the time of search at the taxpayer premises. No proof is required for possession and investment for the following limit of gold.
• Married Female – 500 Gms (1/2 Kg)
• Unmarried Female -250 Gms (1/4 Kg)
• Male member – 100 Gms

3. Taxability of Gold and its various forms

Gold and its various forms are deemed to be a capital asset and the sale of these would attract capital gains tax.

1. Physical Gold/Gold ETF/Gold Mutual Fund/Digital Gold: Income on the sale of physical gold/Gold ETF/Gold Mutual fund/Digital Gold is taxable under the head “capital gains”
• Long Term: If you sell the physical gold/Gold ETF/Gold Mutual fund/Digital Gold after 3 years of purchase, the gain on sale is considered as Long-Term capital gain and it is taxable @ 20% along with Indexation benefit
• Short Term: If you sell the physical gold/Gold ETF/Gold Mutual fund/Digital Gold before 3 years of purchase, the gain on sale is considered as Short-Term capital gain and it is taxable @ slab rates.
2. Sovereign Gold Bonds (SGB): Sovereign Gold Bonds consists of interest and the amount invested. The taxability of them are as follows
• Interest earned on Sovereign Gold Bonds is taxable at slab rates under the head Income from Other sources
• Income on sale of SGB after the expiry of 8 years is tax exempted
• If you sell the SGB after 3 years of purchase, then it is taxable as Long-Term capital gain and it is taxable @ 20% along with indexation benefit
• If you sell the SGB before 3 years of purchase, then it is taxable as Short-Term capital gain and it is taxable @ slab rates.
3. Gold Derivatives: Income on the sale of gold derivatives is considered as non-speculative business and it is taxable @ slab rates. The taxpayer can also claim the expenses as it is treated under the head business

4. Income Tax on Gold received under Gift or Inheritance or Will

The taxability of gold received under gift or inheritance or will is as follows.

1. Received from the relatives: If the gold is received under inheritance or will or gift from the relatives specified under income tax, the receiver is not liable to pay any income tax on the receipt. If the receiver sells the gold in future, then he is liable to pay income tax on capital gains
2. Received from any other person: If the gold is received from any other person who is not an relative, then the recipient is liable to pay taxes @ slab rates if the gold received during financial year is more than Rs 50000 under the head Income from other sources.

5. Tax Saving on Sale of Gold

Taxpayer having capital gains under short term cannot save taxes by reinvesting but if the taxpayer is having long term capital gain on sale of gold, then he can reinvest and save the taxes as follows.

Section 54F:

1. This section can be claimed either by individuals or HUF.
2. The taxpayer should purchase 1 residential house in India within 1 year before or 2 years after date of sale of gold or construct 1 residential house within 3 years from the date of sale of gold.
3. Quantum of Exemption:
• If cost of new residential house ≥ Net Sale of Consideration of Gold, entire capital gains is exempt
• If cost of new residential house < Net Sale of Consideration of Gold, only proportionate capital gains is exempt
4. The Taxpayer should not own more than one residential house on the date of sale. The Taxpayer should not purchase any residential house within 2 years or construct residential house within 3 years from the date of sale

6. Gold Monetisation Scheme (GMS), 2015

• Gold Monetisation Scheme (GMS) was announced by Government of India in September 2015.
• The purpose of Gold Monetisation scheme is to mobilize the idle gold in the country and put into productive use.
• Gold Monetisation scheme provides an opportunity to the customers to earn interest income on their idle gold holdings.
• Benefits of GMS:
  
  
  • Earns Interest on Idle Gold: Depositors can earn interest upto 2.5% p.a. on the idle gold which would otherwise sit as unused in lockers or homes without financial returns
  • Safety and Security: Gold is stored in government-backed banks, eliminating risks of theft or loss associated with keeping it at home or in private lockers.
  • No Storage Costs: If the gold is invested in GMS, there will be no need to pay locker charges or incur expenses.
  • Improves Liquidity: Converts idle gold into a productive asset, injecting liquidity into the financial system as banks use deposited gold for lending or other economic activities.
  • Enhances Banking Sector Role: Strengthens banks’ ability to offer gold-based financial products and loans, diversifying their portfolios and revenue streams.
• Process of GMS
  
  
  • The Gold Monetisation Scheme (GMS) process in India involves depositing idle gold (minimum 10 grams) at authorized banks or Collection and Purity Testing Centres (CPTC).
  • The gold is tested for purity, melted into standard 995 fineness bars, and credited to a Gold Savings Account with a certificate issued
  • Depositors choose a tenure (1–15 years) and earn interest (up to 2.5% for long-term), while banks utilize the gold for loans or domestic supply.
  • At maturity, redemption is in gold or INR, with interest paid in INR, and premature withdrawal is allowed under specific conditions.
• Eligible Persons:
  
  

  The following resident persons are eligible to make deposit in Gold Monetisation Scheme

  • Individuals / HUF
  • Partnership Firms
  • Trusts including Mutual Funds / Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations
  • Companies
  • Charitable institutions
  • Central Government / State Government / any other entity owned by Central Government or State Government
• Minimum and Maximum Deposits
  
  
  • Minimum Deposits - 10 grams of raw gold (bars, coins, jewellery excluding stones and other metals)
  • Maximum Deposits – No Limit
     NOTE

  ---

  The quantity of gold deposited will be expressed up to three decimals of a gram (ex: 10.543 gms of gold)

• Types of Deposits:
  

  There are 3 types of deposits

  Type of Deposit	Tenor	Rate of interest given by banks	MinimumLockinPeriod
  Short Term Bank Deposit (STBD)	1-3 years	0.5% to 0.75% (Varies from bank to bank)	1 year (Varies from bank to bank)
  Medium Term Government Deposit (MTGD)	5-7 years	2.25% p.a. (Simple Interest annually or cumulative interest at time of maturity compounded annually)	3 years
  Long Term Government Deposit (LTGD)	12-15 years	2.50% p.a. (Simple Interest annually or cumulative interest at time of maturity compounded annually)	5 years

• Taxation: The interest earned under GMS and maturity amount received under Gold Monetisation scheme is completely exempt from Income Tax.