Gold Purchase Tax Guide for Dhanteras and Diwali: What You Need to Know

October 28, 2024 By: Shalini Bhardwaj

As Dhanteras and Diwali approach, the tradition of buying gold takes center stage in India. For many, gold holds deep cultural value and is seen as a long-term investment or a financial safety net. However, whether you’re buying jewelry, coins, or investing in gold ETFs, it’s important to understand the tax implications on both purchasing and selling. Here’s a simplified guide to the taxes on gold to help you make informed choices this festive season.

Understanding Tax on Gold Jewelry: Long-Term and Short-Term Capital Gains

If you buy gold jewelry and decide to sell it later, you’ll be subject to capital gains tax depending on how long you held the asset:

• Long-Term Capital Gains (LTCG): Budget 2024 has made significant changes here. If you hold your gold for more than two years before selling, you’ll pay a 12.5% LTCG tax on the profits (down from the previous 20%). Note that indexation benefits, which adjust the cost price based on inflation, are no longer applicable for gold under this new rule.
• Short-Term Capital Gains (STCG): If you sell your gold within two years of purchasing it, the gains are considered short-term and will be taxed according to your income tax slab.

So, if you’re looking at gold as a long-term investment, be prepared for the tax implications on your gains.

Tax on Gold Mutual Funds: Changes in Capital Gains Treatment

Gold mutual funds allow you to invest in gold without physically holding it, but they are taxed differently from physical gold. For funds purchased between April 1, 2023, and March 31, 2025, here’s how the taxation works:

• Capital Gains Added to Income: The gains, regardless of the holding period, are added to your taxable income. This amount will be taxed according to your income tax slab, without any preferential tax rate.

So, while gold mutual funds can offer a convenient investment option, keep in mind the tax implications as gains will be counted as part of your income, potentially pushing you into a higher tax bracket.

Gold ETFs: Tax Based on Income Slab

Gold Exchange Traded Funds (ETFs) offer an easy way to invest in gold while bypassing storage and insurance hassles. However, recent tax changes affect these too:

• Taxed as Income: Gains from gold ETFs, regardless of the holding period, are added to your income and taxed at the applicable rate for your slab.

For purchases after March 31, 2025, if you sell after a year, a flat LTCG tax of 12.5% applies, but without indexation benefits. This means you’re taxed on the entire gain, so make sure to weigh these details if gold ETFs are part of your investment strategy.

Sovereign Gold Bonds: A Tax-Free Investment Option on Maturity

Sovereign Gold Bonds (SGBs) offer a unique tax advantage:

• No Capital Gains on Maturity: If you hold your SGBs until maturity and redeem them with the Reserve Bank of India (RBI), you won’t incur any capital gains tax. This rule remains unchanged even after Budget 2024.
• Early Redemption: If you sell your SGBs within three years, the gains are taxed as income, according to your slab.

These bonds can be an attractive option if you’re looking for a tax-efficient, long-term investment in gold with guaranteed returns.

Selling Gold Jewelry: Tax Rules Depend on Holding Period

When you decide to sell your gold jewelry, taxes depend on how long you’ve owned it. Gains from jewelry held for more than two years are taxed as long-term capital gains at 12.5%, while those from jewelry held for less than two years fall under short-term capital gains, taxed at income tax slab rates.

Receiving Gold as a Gift: Know When It’s Tax-Free

Gold is commonly exchanged as a gift during Diwali. Here’s what you need to know:

• No Tax on Family Gifts: If you receive gold from close relatives (such as parents or siblings), you don’t have to pay tax on it.
• Tax on High-Value Gifts: If you receive gold worth more than Rs 50,000 from non-relatives, it’s taxable under “Income from Other Sources.”

Understanding these rules can help you manage any gift-related tax liabilities, allowing you to enjoy the festive exchange without financial surprises.

Make an Informed Choice This Diwali

Gold remains one of the most cherished investments in India, both culturally and financially. This festive season, by knowing the tax implications on your gold purchases, you can make wise decisions, maximizing both the enjoyment and security that this timeless asset brings.