Key Takeaways
- Physical gold and jewellery held for more than 24 months qualify as long-term capital assets. LTCG is taxed at a flat 12.5% with no indexation benefit (Finance Act 2024).
- Gold ETFs (listed) get a shorter 12-month LTCG threshold for units purchased on or after 1 April 2025, making them more tax-efficient than physical gold.
- Sovereign Gold Bonds (SGBs) face a major change from FY 2026-27: capital gains exemption now applies only to original subscribers who hold until the 8-year maturity. Premature redemptions and secondary market purchases are taxable at 12.5% LTCG.
- For inherited or gifted gold, your cost of acquisition is the previous owner's purchase cost, not the current market value. The holding period also includes the previous owner's period.
- CBDT safe harbor limits allow married women to hold up to 500 grams of gold jewellery without seizure during a tax search, even without purchase proof.
- Section 54F exemption can save you significant tax if you invest the sale proceeds from gold into a new residential house.
How is gold taxed in India? Gold is taxed under the capital gains framework when you sell it. Physical gold, jewellery, and digital gold held for more than 24 months attract long-term capital gains (LTCG) tax at 12.5% with no indexation benefit. If sold within 24 months, the gains are added to your total income and taxed at your slab rate. Gold ETFs (listed) qualify for LTCG after just 12 months. Sovereign Gold Bond redemption by the original subscriber at maturity remains exempt, but all other SGB exits are now taxable from FY 2026-27.
Gold is the most widely held investment in Indian households, yet it is also one of the most misunderstood when it comes to taxation. Whether you sold your mother's old bangles, redeemed a Sovereign Gold Bond, or exited a gold ETF, the capital gains treatment varies by the form of gold, the holding period, and the date of acquisition. With Finance Act 2024 removing the indexation benefit for gold and Budget 2026 tightening the SGB exemption, the rules have changed materially in the last two assessment years. This guide covers every form of gold, the applicable rates for AY 2026-27, worked examples, and the exemptions that can legitimately reduce your tax outgo.
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Tax on Sale of Physical Gold and Jewellery
Physical gold includes gold bars, coins, biscuits, bullion, and all forms of gold, silver, and platinum jewellery and ornaments. For income tax purposes, all of these are treated as "capital assets" under Section 2(14) of the Income Tax Act, and any profit on sale is taxable as capital gains.
Holding Period
| Duration | Classification |
|---|---|
| More than 24 months | Long-term capital asset (LTCA) |
| 24 months or less | Short-term capital asset (STCA) |
Tax Rates
Long-term capital gains (LTCG): Flat 12.5% under Section 112. No indexation benefit is available. The indexation option (choose between 12.5% without indexation or 20% with indexation) applies only to land and building, not to gold or jewellery. This is a common point of confusion. Finance Act 2024, effective for transfers on or after 23 July 2024, removed the indexation benefit for all asset classes except land and building.
Short-term capital gains (STCG): Added to your total income and taxed at your applicable slab rate. No special concessional rate applies.
Cost of Acquisition
Your cost of acquisition for gold jewellery is not just the gold value. It includes:
- Purchase price of gold (weight x rate per gram)
- Making charges paid to the jeweller
- GST paid on making charges (5% GST on making charges)
- GST paid on gold value (3% on gold value)
All of these together form your cost of acquisition. Keep the purchase invoice from the jeweller, as it is the primary proof of cost.
No TDS on Physical Gold Sale
There is no TDS deducted when you sell physical gold or jewellery to a jeweller. Section 194S (1% TDS on virtual digital assets) applies only to cryptocurrency and other VDAs, not to physical gold. However, the sale may still be reported through the jeweller's GST filings and appear in your Annual Information Statement (AIS).
Worked Example
You purchased a gold necklace in March 2022 for Rs 3,50,000 (including Rs 10,500 GST on gold + Rs 25,000 making charges + Rs 1,250 GST on making charges). You sell it in August 2025 for Rs 5,20,000.
- Holding period: March 2022 to August 2025 = more than 24 months, so LTCG
- Cost of acquisition: Rs 3,50,000 (the full invoice amount including GST and making charges)
- LTCG = Rs 5,20,000 minus Rs 3,50,000 = Rs 1,70,000
- Tax = 12.5% x Rs 1,70,000 = Rs 21,250 (plus applicable surcharge and cess)
Tax on Sale of Gold ETFs (Listed)
Gold ETFs are units listed on a recognised stock exchange (NSE/BSE) and are classified as listed securities. This gives them a significant tax advantage over physical gold.
Holding Period for LTCG
The holding period threshold for gold ETFs depends on when you purchased the units:
| Purchase Date | LTCG Threshold |
|---|---|
| On or after 1 April 2025 | More than 12 months |
| Between 23 July 2024 and 31 March 2025 | More than 24 months |
Tax Rates
LTCG: Flat 12.5% under Section 112, no indexation.
STCG: Added to total income, taxed at slab rates.
Gold ETFs are more tax-efficient than physical gold because of the shorter 12-month LTCG threshold (for units bought from 1 April 2025 onward). If you hold a gold ETF for just over a year, your gains qualify as long-term and are taxed at 12.5% instead of slab rates which could be as high as 30%.
Tax on Gold Mutual Funds (Fund of Funds, Unlisted)
Gold mutual funds (like SBI Gold Fund, HDFC Gold Fund, Nippon India Gold Savings Fund) are fund-of-funds that invest in gold ETFs. These are unlisted units, so they get a different treatment from listed gold ETFs.
Holding Period and Tax Rates
| Type | LTCG Threshold | LTCG Rate | STCG Rate |
|---|---|---|---|
| Gold mutual fund (unlisted units) | More than 24 months | 12.5%, no indexation | Slab rates |
Unlike listed gold ETFs which get the 12-month benefit from 1 April 2025, gold mutual funds retain the 24-month threshold because their units are unlisted. This is an important distinction when choosing between a gold ETF and a gold mutual fund for tax planning.
Tax on Sovereign Gold Bonds (SGBs): Budget 2026 Changes
This is the section with the most significant recent changes. Budget 2026 has materially altered the tax treatment of Sovereign Gold Bonds, and the new rules apply from FY 2026-27 onward.
Before Budget 2026 (Up to FY 2025-26)
Under the earlier rules, capital gains on SGB redemption were fully exempt regardless of whether the holder was the original subscriber or a secondary market buyer. Premature redemption after the 5-year lock-in was also exempt. Only the 2.5% annual interest was taxable at slab rates.
From FY 2026-27 (Budget 2026 Changes)
The exemption has been narrowed significantly:
- Capital gains exemption applies only to the original subscriber who purchased during the primary RBI issue and holds the bond until maturity (8 years)
- Premature redemption (even after the 5-year lock-in window): Not exempt. LTCG taxed at 12.5%
- Secondary market purchases (bought on NSE/BSE from another holder): Not exempt. LTCG taxed at 12.5%, even if held to maturity
- Interest: 2.5% per annum, taxable at slab rates (unchanged)
For a deeper analysis of SGB-specific rules, see our dedicated Sovereign Gold Bond taxation guide.
SGB Tax Treatment Comparison
| Scenario | Up to FY 2025-26 | From FY 2026-27 |
|---|---|---|
| Original subscriber, held to maturity (8 years) | Exempt | Exempt |
| Original subscriber, premature redemption after 5 years | Exempt | LTCG 12.5% |
| Purchased from secondary market, held to maturity | Exempt | LTCG 12.5% |
| Purchased from secondary market, sold on exchange | LTCG 12.5% | LTCG 12.5% |
| Interest (2.5% p.a.) | Slab rates | Slab rates |
If you purchased SGBs on the secondary market (NSE/BSE) expecting the maturity redemption to be tax-free, note that this exemption no longer applies from FY 2026-27. Plan your exit strategy accordingly.
Tax on Digital Gold
Digital gold purchased through apps like PhonePe, Google Pay, Paytm, or platforms like Augmont and SafeGold is treated as physical gold for income tax purposes. The tax rules are identical:
- Holding period: More than 24 months for LTCG
- LTCG rate: 12.5%, no indexation
- STCG rate: Slab rates
The digital gold platform may issue a sale statement showing purchase price, sale price, and the quantity in grams. Keep this as your cost documentation. Digital gold is not the same as a gold ETF. It represents actual gold stored in a vault on your behalf, not a listed security.
Tax on Inherited or Gifted Gold
Gold jewellery is commonly passed down through families. The tax rules for inherited and gifted gold differ from a straightforward purchase.
Inherited Gold
When you inherit gold jewellery through a will or by succession:
- Cost of acquisition: The cost at which the previous owner (the deceased or the original purchaser in the chain) acquired the gold. It is not the market value on the date of inheritance.
- Holding period: Includes the previous owner's holding period. If your grandmother bought the gold in 1985 and you inherited it in 2020, the holding period starts from 1985.
- Since inherited gold has typically been held for decades, it almost always qualifies as a long-term capital asset.
Gifted Gold from a Relative
Under Section 56(2)(x), gold received as a gift from a relative (as defined in the Income Tax Act: spouse, siblings, parents, children, grandparents, grandchildren, and certain in-laws) is fully exempt from gift tax, regardless of value.
When you sell this gifted gold:
- Cost of acquisition: The donor's original purchase cost
- Holding period: Includes the donor's holding period
Gifted Gold from a Non-Relative
If gold jewellery is received from a non-relative and the fair market value exceeds Rs 50,000, the entire fair market value (not just the excess over Rs 50,000) is taxable as income from other sources in the year of receipt.
When you eventually sell this gold:
- Cost of acquisition: The donor's original purchase cost (the same rule applies)
- Holding period: Includes the donor's holding period
Worked Example: Inherited Jewellery
Your mother purchased gold jewellery in 2005 for Rs 80,000. You inherited it in 2020. You sell it in September 2025 for Rs 4,50,000.
- Cost of acquisition: Rs 80,000 (your mother's purchase cost, not the 2020 market value)
- Holding period: From 2005, clearly long-term
- LTCG = Rs 4,50,000 minus Rs 80,000 = Rs 3,70,000
- Tax = 12.5% x Rs 3,70,000 = Rs 46,250 (plus surcharge and cess)
Note: There is no indexation benefit available. The old rule of 20% with indexation for gold was replaced by the flat 12.5% rate for transfers on or after 23 July 2024.
CBDT Safe Harbor Limits for Gold Holdings
During income tax search or survey operations, tax authorities may seize undisclosed assets. However, CBDT Instruction No. 1916 dated 11 May 1994 provides safe harbor limits for gold jewellery that will not be seized, even if the holder cannot produce purchase receipts or explain the source from income records:
| Person | Safe Harbor Limit |
|---|---|
| Married woman | 500 grams |
| Unmarried woman | 250 grams |
| Male family member | 100 grams |
Important Clarifications
These safe harbor limits are not legal holding limits. There is no law that restricts how much gold an Indian citizen can hold. You can legally hold any quantity of gold as long as you can explain the source: purchase invoices, inheritance records, wedding gift documentation, agricultural income used for purchase, etc.
Gold coins and bars do not get this safe harbor protection. Only gold jewellery and ornaments are covered. Coins and bars found during a search may be seized if the holder cannot explain the source with documentary evidence.
GST on Gold Purchase: Impact on Cost of Acquisition
While GST is not an income tax, it directly affects your capital gains computation because the GST paid at purchase forms part of your cost of acquisition.
| Component | GST Rate |
|---|---|
| Gold value | 3% |
| Making charges | 5% |
Total cost of acquisition = Gold value + 3% GST on gold + Making charges + 5% GST on making charges
For detailed GST rules on gold, see our dedicated guide.
Example: You buy a gold chain weighing 20 grams at Rs 6,000 per gram.
- Gold value: 20 x Rs 6,000 = Rs 1,20,000
- GST on gold: 3% x Rs 1,20,000 = Rs 3,600
- Making charges (say 10%): Rs 12,000
- GST on making charges: 5% x Rs 12,000 = Rs 600
- Total cost of acquisition: Rs 1,36,200
When you sell this gold, Rs 1,36,200 is your cost of acquisition for capital gains computation, not just the gold value of Rs 1,20,000.
Capital Gains Exemption on Gold Sale (Section 54F)
Many gold sellers do not know that they can claim a powerful Section 54F exemption when they sell gold and invest the proceeds in a residential house.
How Section 54F Works for Gold
Section 54F provides exemption from LTCG on the sale of any capital asset other than a residential house, provided you invest the net sale consideration (the entire sale price, not just the gains) in a new residential house.
Conditions
- The asset sold must be a long-term capital asset (gold held for more than 24 months qualifies)
- You must not own more than one residential house on the date of transfer (excluding the new house you plan to buy)
- Purchase the new house within 1 year before or 2 years after the date of sale, or construct within 3 years
- If you invest the full net sale consideration, the entire LTCG is exempt. If you invest a partial amount, proportionate exemption applies
- Maximum exemption is capped at Rs 10 crore
Worked Example
You sell ancestral gold jewellery for Rs 25 lakh. Your cost of acquisition (original owner's cost) is Rs 3 lakh. LTCG = Rs 22 lakh. You buy a flat for Rs 25 lakh within 2 years.
Since you invested the entire net sale consideration (Rs 25 lakh) in a residential house and you do not own more than one house, the full Rs 22 lakh LTCG is exempt under Section 54F. No capital gains tax is payable.
If you invest only Rs 15 lakh in the house, the exempt portion = Rs 22 lakh x (Rs 15 lakh / Rs 25 lakh) = Rs 13.2 lakh. The remaining Rs 8.8 lakh is taxable at 12.5%.
Reporting Gold Sale in Your ITR
Gold sale must be reported in Schedule CG (Capital Gains) of your income tax return. You need to file ITR-2 or ITR-3 to report capital gains. ITR-1 (Sahaj) does not have Schedule CG.
Where in Schedule CG
Report the gold sale under "Other assets" (not under land/building and not under listed shares). The fields typically required are:
- Date of sale and date of purchase (or date of inheritance/gift)
- Sale consideration (the amount received)
- Cost of acquisition (purchase price including making charges and GST)
- Any transfer expenses (brokerage, if applicable)
- Capital gains = Sale consideration minus cost of acquisition minus transfer expenses
- Whether long-term or short-term
Documentation to Maintain
- Purchased jewellery: Jeweller's invoice showing weight, purity (karat), making charges, GST
- Inherited gold: Will, succession certificate, death certificate of the previous owner, any available purchase records or valuation report from the time of original purchase
- Gifted gold: Gift deed (if any), evidence of relationship (for relative exemption)
- Gold ETF/Mutual Fund: Demat statement, redemption statement from AMC
- SGB: RBI allotment letter or demat statement, redemption advice
Common Mistakes in Gold Taxation
-
Using market value as cost for inherited gold. The correct cost is the previous owner's purchase price, not the market value on the date of inheritance. This is the single most common error.
-
Forgetting to include making charges in cost of acquisition. Making charges and GST on making charges are part of the cost. Excluding them inflates your capital gains and your tax.
-
Assuming "personal jewellery" is tax-free. There is no exemption for personal-use jewellery. Capital gains tax applies on the sale of all gold and jewellery, whether personal or investment.
-
Not reporting gold sale because no TDS was deducted. There is no TDS on physical gold sales, but the transaction may appear in your AIS through the jeweller's GST filings. Non-reporting can trigger a notice.
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Claiming indexation benefit on gold sold after July 2024. Indexation is available only for land and building (for individuals and HUFs with pre-23 July 2024 purchases). Gold, jewellery, ETFs, and all other assets get only the flat 12.5% rate without indexation.
-
Treating gold exchange as non-taxable. When you exchange old gold for new jewellery at a jeweller, the exchange is a deemed sale of old gold at the value credited. Capital gains apply on this deemed sale.
Frequently Asked Questions
Is there any tax on buying gold in India?
No income tax on buying gold. You pay 3% GST on the gold value and 5% GST on making charges at the time of purchase. Income tax applies only when you sell gold at a profit.
I sold my mother's old gold jewellery. How do I calculate capital gains?
If you inherited the jewellery, your cost of acquisition is what your mother (or the original purchaser in the chain) paid for it. Your holding period includes her holding period. Since most inherited jewellery was held for decades, it qualifies as LTCG taxed at 12.5% on the difference between sale price and the original cost.
I exchanged old gold for new jewellery at a jeweller. Is this taxable?
Yes. An exchange is treated as a sale of old gold (at the value credited by the jeweller) and a purchase of new jewellery. Capital gains tax applies on the deemed sale of old gold. Keep the jeweller's invoice showing the exchange value.
Do I need to show gold sale in ITR if the jeweller did not deduct any TDS?
Yes. There is no TDS on physical gold sales to jewellers. But the sale may appear in your Annual Information Statement (AIS) through the jeweller's GST returns or PAN-linked transactions. You must report the capital gains in Schedule CG of your ITR regardless of TDS.
I bought a Sovereign Gold Bond from NSE and plan to hold it until maturity. Will I get tax exemption?
No. From FY 2026-27 (Budget 2026 changes), the capital gains exemption on SGB redemption applies ONLY to original subscribers who purchased during the primary RBI issue and held until maturity. If you bought from the secondary market (NSE/BSE), you will pay 12.5% LTCG on gains at maturity.
Is gold ETF better than physical gold for tax purposes?
Yes, for one key reason: Gold ETFs (listed) qualify for LTCG after just 12 months of holding (for units bought on or after 1 April 2025), while physical gold requires 24 months. The LTCG rate is the same 12.5% for both. ETFs also have lower storage risk and tighter buy-sell spreads.
Can I claim Section 54F exemption if I sell gold and buy a house?
Yes. Section 54F provides exemption when you sell any capital asset other than a residential house and invest the net sale consideration in a new residential house. You must not own more than one residential house on the date of transfer. This applies to gold, jewellery, shares, and other non-house capital assets.
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