< >

Home > Income Tax > Help Center > Gold as hedge against turbulent timesLast Updated: Sep 26th 2023

How GOLD help you afloat in a Turbulent Economy & its Tax Impact

Turbulent economy that we see these days due to COVID-19 mandate us to re-orient towards the new normal. Gold is very commonly hedged against the uncertainty in the capital markets, covers ways, means and the impact on your taxes.

How GOLD help you afloat in turbulent economy & Tax impact

This document covers
  1. Why Gold as hedge against troubled Economy ?
  2. What is the Tax on Gold ?
  3. How the Capital Gain on Gold is calculated ?
  4. How to avoid or defer paying Tax on Gold ?
  5. Alternatives to buying Gold as Coin or jewellery ?

1. Why Gold as hedge against troubled Economy ?

When the going gets tough, the tough get going .. while uncertainty is not new to capital markets in the past two decades it all depends on one's ability to steer into the right direction.

Turbulent economy that we see these days due to COVID-19 mandate us to re-orient towards the new normal. While GOLD is not new to Indian investor or household, various instruments that were available in investing gold makes you well aware of pros and cons before investing and complications with the capital gains arise at the time sale or redemption of such.

Gold is very commonly hedged against the uncertainty in the capital markets. Even Governments do buy gold to make their economy afloat. One must pay attention towards this asset class in saving their fortunes during these tough times.

Gold in India is a Capital Asset and is most favoured asset to buy in the form of jewellery during festive seasons and weddings, and pass it on to generations. While buying Gold one must pay GST (3% GST), when selling the same to another prospective buyer or a shop, the gain from the sale is taxed from the income tax perspective.

2. What is the Tax on Gold ?

Before GST came into picture (before Jul 2017), The tax on Gold was at 1% Service Tax, and 1% VAT, a total of 2% Tax at the time of buying. Post GST the same was increased from 2% to 3%.

The Capital gains arrived from the Sale of Gold is taxed as per the Income Tax Rules. Any capital asset held by a person for a period of more than 36 months immediately preceding the date of its transfer will be treated as long-term capital asset. While there are minor changes to this rule, for Gold, on need to identify whether it is a long-term or short-term gain.

Long term gains do go through indexation that will reduce your Taxable Income from the gain from the same.

3. How the Capital Gain on Gold is calculated ?

Capital gain on Gold is calculated as

Capital gain = (full value of consideration received on transfer) ( cost of acquisition of capital asset + cost of improvement of capital asset + expenditure incurred in connection with transfer of capital asset)

Long term gains do go through indexation that will reduce your Taxable Income from the gain from the same. Refer a comprehensive guide on capital gains tax

4. How to avoid or defer paying Tax on Gold ?

There are two Sections in Income Tax Law that can be used to avoid or defer tax on capital gains from the sale of Gold.

54F: Long-term capital gain arising on transfer of any capital asset other than residential house property. Where net sale consideration to be re-invested in purchase or construction of one residential house property in India

Using Section 54F, one can either avoid or delay in paying income tax on the proceeds from GOLD

In addition, you have an opportunity to park your gains from gold in a Capital Gains Deposit Account Scheme (aka CGAS Scheme) account from the select banks to defer paying taxes for up to 3 years. This requires attention from your Tax Consultant like to understand on how.

5. Alternatives to buying Gold as Coin or jewellery ?

As Indian Society is moving due to Urbanization, Westernization, Jobs, and other Opportunities, traditional security or interest in holding Gold in its physical form such as Coin form, jewellery has lost its significance due to physical security etc.

There are alternatives in holding Gold as an asset in your portfolio to hedge and/or to treat as a traditional asset class.

5A. Gold ETF

Gold ETF: is an exchange-traded fund (ETF), is a commodity-based ETF where the principal asset is gold. It is like any other ETF act like individual stock, and trade on an exchange system in the same manner. The buy event do not give you any physical form of gold metal.

Tax Impact of GOLD ETF: Gold ETFs are subjected to Taxes like any other ETF. Gains will be treated as Short-Term Gain if liquidated within a year. Otherwise would be treated as Long term capital Gains.

5B. Gold Fund of Funds

Gold Fund of Funds: Another means of owning Gold in your Portfolio, gives you an opportunity to invest even in small amounts. Performance would depend on the basket of funds that were part of the Fund.

Tax Impact of Gold Fund of Funds: The Tax treatment would be like GOLD ETF.

5C. E-Gold

E-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, which is not the case for GOLD ETF or Gold Fund of Funds.

Tax Impact of E-Gold: is like Physical form, one need to hold the units for 3 years to be treated as long term capital gain and the exemptions from Sections 54F can be availed to reduce the tax burden.

5D. Sovereign Gold Bond Scheme

Sovereign Gold Bond Scheme issued by RBI: Reserve Bank of India (India’s Central Bank fully owned by India, which issue Indian Currency Rupee in India), issues Sovereign Gold Bonds periodically (sometimes every month) through various banks, post offices, and agencies at a minimum denomination of 1 gram of Gold for an average gold price during previous week, which is in general, slightly lower than the market price and at times gives you a Rs. 50 rate reduction to attract depositors.

Tax Impact of Sovereign Gold Bonds: is divided into three parts

  1. Gold Bonds pay an Annual interest rate of 2.5% in addition to Gold rate change per market price fluctuations. Interest rate earned is fully taxable at the peak rate applicable to the taxpayer during an assessment year.
  2. Sovereign gold bonds are redeemed at the end of 8 years and the gains at the time of redemption is 100% tax free.
  3. Regular short-term, and/or long-term capital gains would be applicable for the gains received between 6th month and redemption time (8th year).

Income Tax e-Filing
for Individuals, HUF, AOP, Businesses
Finish in 7 mins
100% Free

Our Tax Services

Online Income Tax Filing Time: ~7 mins
  • Comprehensive & Accurate > No limits.
  • Highly Secure > Peace of mind.
  • Maximum Deductions > Save on Taxes.
  • No more visits to Tax Consultants > Save Time & Money.
  • Real-time Tax Calculation
  • Available in both Web Browser & Mobile App

Start Now

GST Accounting Software Price: Free for 30 days in India  refer pricing for other countries such as India, Australia, Malaysia, Nepal, Pakistan, Singapore, Sri Lanka, & UK

Easiest GST ready Accounting software

  • GST Compliant Invoicing
  • Online - Highly available
  • Quick Onboarding - Import your data from legacy
  • Personalization - Highly customized Invoicing
  • Drafts > Estimates > POs > Delivery Challans > Invoices > CR/DR Notes > RCs & All.
  • Barcode scanner Integration
  • Amazon, Flipkart Imports
  • Individual, or Bulk Payments - just a Click away
  • Multiple users can Book / Bill at the same time
  • Quick Invoicing, Auto Delivery, & Reminders
  • Multi-Channel GST returns preparation
  • Customized for Regular and Composition
  • AI Data Insights
  • AI Prioritization
  • AI Alerts
  • Expenses & Purchases
  • Real Time P & L
  • Barcode Scanner, e-Way Bill Integration
  • Excellent User Experience
  • Easy to understand language
  • Artificial Intelligence enablement
  • above all, Count on our Outstanding Client Service

Start NowLearn more
Tax Expert Services Price: Rs.799 onwards

  • Affordable Tax Services for Businesses, Associations, Individuals
  • GST Registration
  • GST Return Filing
  • GST Accounting
  • GST Consultation
  • Notice Handling
Income Tax
  • Income Tax Return Filing for Businesses, Associations, Individuals
  • Tax Savings
  • TDS Preparation
  • General Tax Compliance
  • Investment Advisory
  • Capital Gains Consultation
  • Tax Planning
  • Notice Handling
Virtual Accounting
  • Complete Accounting for Businesses, Associations, Individuals
  • Compliance & Accounting Portal Access for easy monitoring
  • Accounting Advisory
  • Tax Savings
  • GST, Income Tax, TDS, General Tax Compliance
  • Business Planning

Contact Now   WhatsApp Now

How to get help from