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Tax on Gold

Gold Income Tax in India 2020

Last Updated 02nd Dec 2020

  • The profits from the sale of gold bars, jewelry, coins, ETF, etc. attract tax under capital gain.
  • Long term capital gain is applicable if the gold is sold after 3 years from the date of purchase.
  • Short term capital gain is applicable if the gold is sold before 3 years from the date of purchase.
  • The long term capital gain is taxed at the rate of 20%, while short term capital gain is taxed as per the applicable tax slab.
  • If the gold is received as a gift, then it will be taxed if the value of gold received during the financial year exceeds ₹ 50,000.
  • In case of sale of gold received as gift or inheritance, the applicability of long term and short term capital gain is determined based on the combined holding period.
INCOME TAX CALCULATOR

Tax on gold: short term, long term and calculation

Income Tax Act of India specifies that profit from sale of gold bars, jewelry, coins or utensils or any other form of precious metal will attract tax under capital gains. The profit on sale of your gold holding is taxable under the head "Capital Gains" of Income Tax. Only exception to this is in case of gold dealers who transact in gold as a part of their business, where profit on such transactions is taxable under the head "Income from business or profession".

Capital Gain Tax on Gold, Gold Jewelry, Bars, ETF, Gold Coins, Gold utensils

Type of Gain Holding Period Capital Gain Tax Rate Exemption
Short term capital gain on gold Less than 3 years As per the tax slab applicable to the assesee None
Long term capital gain on gold More than or equal to 3 years 20% with indexation benefit Exemptions available if the net proceeds are invested in Section 54EC bonds or in residential property section 54F

Short term capital gain tax on gold bars, gold coins, gold ETF's

When you sell your gold asset which may be in the form of gold jewelry, coin or ETF within three years of its date of acquisition, any gains arising from such sale will be considered as short term capital gain. The profits earned from the sale of gold in case of short term capital gain will be taxed as per the marginal income tax slab applicable to individuals and HUFs. The profit or gains earned is added to your regular income which is taxed as per the income tax slabs prescribed by Income Tax Department.
For the current Income Tax slabs, you can refer to guide of income tax slabs for FY 2017-18, AY 2018-19.
For example: Mr. A purchased gold coins worth ₹ 2 Lakh on 1st April, 2014 and sold the same for ₹ 3 Lakh on 31st March, 2016.

What is his tax liability?

Mr. A has earned a profit of Rs 1 lakh on sale of gold loans which will be treated as capital gains. Since the period of holding is less than 3 years, the gain will attract short term capital gains tax under Income Tax Act. The tax rate applicable will correspond to Mr. A's marginal tax rate slab in the relevant year.

Long term capital gains on sale of gold bars, gold coins, ETF's

When you sell your gold jewelry or coins or ETF after three or more years from the date of acquisition purchase, the profit arising from the sale will be categorized as long term capital gains. Long term capital gain earned from sale of gold assets carries a tax rate of 20% along with applicable surcharge and education cess. The profits earned under LTCG are taxable under the separate head of long term capital gains and is eligible for the benefit of indexation of the acquisition cost of gold assets. The long term capital gain is computed by reducing such indexed cost from the net selling price realized.
For example: Mr. A purchased gold coins of ₹ 5,00,000 lakhs on 1st April, 2012 and sell the same for ₹ 7,00,000 lakhs on 31st March, 2016.

What is his tax liability?

Mr. A has earned a profit of ₹ 2 Lakh on sale of gold loans which will be treated as a capital gain and hence, attract capital gains tax. Since the period of holding is more than 3 years, the capital gain will be categorized as long term capital gains and will be taxable at the rate of 20%. Mr. A can avail the benefit of indexation and will be liable to pay tax on the difference between selling and indexed cost of acquisition of gold coins. Indexed cost of acquisition is higher than the actual cost of acquisition and hence, capital gains computed will be less than ₹ 2 Lakh.

Tax exemptions on long term capital gains arising from the sale of gold

Income Tax Act provides tax exemptions on long term capital gain from sale of gold assets under Section 54EC and 54F.
Exemption available under Section 54EC: Section 54EC of Income Tax Act exempts capital gains tax on capital gains arising from the sale of gold, if you invest the sale proceeds in capital gains bonds issued by NHAI, REC, NHB and other specified public sector entities under Section 54EC. The maximum amount of capital gains that can be invested in these bonds in a financial year is ₹ 50 Lakh. The investment must be made within six months from the date of sale of asset.
Exemption available under Section 54F: Section 54F of Income Tax Act exempts from capital gains tax arising from sale of gold, if you invest the sale proceeds in residential property as specified under section 54F. You can claim the deduction on one residential property that is bought within 1 year before or 2 years after the sale of gold assets or for construction of one residential property within 3 years from the date of transfer.

Tax on Gold Gift

Tax on gold received as gift or inheritance

If you receive gold or a gold asset as a gift, it will be taxable at receipt under the head "Income from other sources",- if the aggregate value of gifts including gold received during the year exceeds ₹ 50,000.
However, there are some exemptions available on movable gifts (including gold).

  • Aggregate value of gifts is less than ₹ 50,000 in a year
  • Gifts are received from relatives specified in the Income Tax Act, which include
    • Spouse of an individual
    • Brother or sister of an individual
    • Brother or sister of spouse of an individual
    • Brother or sister of either of parents of an individual
    • Any lineal ascendant or descendent of an individual
    • Any lineal ascendant or descendent of spouse of an individual
  • Gifts are received on the occasion of the marriage of the individual from friends or relatives
  • Any asset received as inheritance either under will or under law of succession which is applicable to you.

Tax on sale of gold assets received as gift or inheritance

You are liable to pay capital gains tax at the time of sale of gold assets that have been gifted or inherited by you. In this scenario, you are liable to pay capital gains tax on the entire sale proceeds of gold assets, as the cost of acquisition in case of gifted or inherited gold is taken as nil.
The applicability of short term or long term capital gains tax will be based on the combined holding period of the gold asset which includes the period during which it was held by the previous owner who had actually paid for it and the period the gold has been with you before sale. If the combined holding period is more than 3 years than the gain will be considered as long term capital gains and if the combined holding period is less than 3 years then the gain will be considered as short term capital gains.
If the gain qualifies as long term capital gains, it will be taxable at the rate of 20%. If the gain qualifies as short term capital gains, then tax rate corresponding to the normal rate for the assessee as determined based on his total income is applicable.

Tax on sale of gold deposit certificate under Gold Monetisation Scheme

The gold deposit certificates issued under the Gold Monetisation Scheme, 2015 are not treated as capital assets for the purpose of calculating capital gains under Income Tax Act. Any profit arising from sale of these certificates is fully exempted from tax. Further, interest earned on such certificates is also tax exempt

Tax on sale of Gold Sovereign Bonds

Profit from sale of Gold Sovereign Bonds is fully exempt from tax. However, interest earned on Gold Sovereign Bonds is taxable as per the applicable Income Tax provisions.

FAQs

How much gold is tax free in India?

The tax on gold arises only when you sell it. Thus, there is no limit to the extent of gold you can hold without paying tax if you are not going to sell it.

What is the tax on gold in India?

The short term capital gain tax on gold is applicable income tax slab rate, whereas the rate of long term capital gain on gold is 20%.

How do you calculate tax on gold?

If the tax on gold is under short term capital gain, then the profits from the sale will be added with regular income to calculate tax based on applicable income tax rates. On the other hand, if the tax on gold is under long term capital gain, then the profits from the sale will be taxed at the rate of 20% by applying the indexation of cost.

Do you get taxed on selling gold?

Yes, the tax on gold is applicable only when you sell the gold.

How much gold can you sell before paying tax?

There is no exemption based on the amount of gold. However, in case of long term capital gain arising from gold, the exemption is available if net proceeds are invested in bonds as per Section 54EC or in residential property as per Section 54F.

Is gold purchase taxable?

No, the gold purchase is not taxable in India.

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