How are Sovereign Gold Bonds, gold jewellery and gold ETFs taxed? Know expert views

Sovereign Gold Bonds: Friday (February 16, 2024) was the last day to invest in Sovereign Gold Bonds 2024, SGB Series-IV. Sovereign Gold Bonds (SGBs) are popular among investors who don't want to purchase gold in its physical form or want it in both forms. Since bonds are issued by the Reserve Bank of India (RBI) and made available through banks, financial institutions, and post offices, people buy SGBs as they find them a reliable investment option. Through SGBs, the government provides 99.9 per cent pure gold of 24 carats in the form of bonds. In SGB Series-IV, the rate of gold was kept at Rs 6,263 per gramme.  

While physical gold that you purchase today is sold at the ongoing market price, SGBs provide an extra advantage of 2.5 per cent annual interest on your investment. 

The maturity period of a SGB is eight years, and you sell the bond at gold's ongoing market rate as decided by the government. 

So, one gets interest plus redemption on an SGB investment. 

On the other hand, gold jewellery is an age-old way of investing in the metal. People often purchase gold when it is cheap and sell it when it is high.

Apart from these two options, the third way to invest is in gold exchange-traded mutual funds (ETFs), which track the domestic gold price.  

One gold ETF unit is equal to 1 gramme of gold and is backed by physical gold of very high purity. 

However, if you earn money from any of these three investment options, you are taxed in different ways. In this write-up, through expert views, know how you are taxed on earnings from SGBs, gold ETFs, and gold jewellery.

Tax implications on SGBs, gold jewellery, and gold ETFs 

Milin Bakhai, Associate Partner, N.A.Shah Associates, says-

In India, traditionally, investment in gold were done either in jewellery or bullions.

Now, with a change in investment dynamics, new modes are available to invest in gold such as Gold ETFs, Gold Bonds, etc.

The taxability of gains on sale of such investments, also varies depending on the modes of investment and holding period. 

Taxability of Sovereign Gold Bonds (SGBs)

SGB are redeemed after 8 years, and any amount received at the time of redemption is tax free if the holder of such bonds is an individual.

SGB bonds are also traded on the stock exchange; in such an event, the taxability of any gains would depend upon the holding period of the bonds.

If the bonds are held for more than 12 months, then gains would be taxable at 20% after taking benefit of indexation or taxable @10 per cent without claiming indexation benefit, plus applicable surcharge and cess. Whereas, if bonds are held for less than 12 months, any gain would be taxable per the applicable slab rate.

Taxability of Gold ETFs

Gold ETFs bought till March 31, 2023, through a recognised stock exchange are taxed like physical gold, depending upon the holding period.

Gold EFTs purchased on or after April 1, 2023, would be considered a short-term capital asset, irrespective of their holding period, and any gain on the sale of such ETFs would be taxable at applicable slab rate.
 

Taxability of Physical Gold Jewellery/bullion 

Depending on the holding period of physical gold, capital gains or losses are taxable either short term or long term.

If gold is held for more than 36 months, the same would be considered a long-term asset, and any gains on sale after reducing the index cost of acquisition would be taxable @20% plus applicable surcharge and cess.

If the same is held for less than 36 months, any gains on sale would be taxable per the applicable slab rate.