Gold investment tax changes 2024: New rules explained

How will different types of gold investments be taxed now?

We also explore which type of gold investment is the most tax efficient

gold-investment-tax-changes-2024

Gold has always been India's preferred child when it comes to investing. In fact, Indian households hold as much as 25,000 tonnes of gold, according to a July 2023 World Gold Council report. That's more gold than even in some of the developed economies' coffers.

Given their popularity among us, it is important to look at how gold investments will be taxed following the recent change in capital gains tax rules.

Physical gold taxation changes

Short-term capital gains

Old rule	New rule
If sold within three years, the gains were added to the taxable income and taxed at the applicable income tax slab rates.	If sold within two years, the gains will be added to taxable income and taxed at the applicable income tax slab rates.

Remark: The reduced holding period is unlikely to affect many investors, as physical gold is typically held for the long term.

Long-term capital gains

Old rule	New rule
If sold after three years, a 20 per cent tax was applicable on the gains, along with indexation benefit.	If sold after two years, a 12.5 per cent tax will be payable on the gains. However, indexation benefits will no longer be applicable.

Remark: Although a shorter holding period might benefit some investors, removing the indexation benefit will lead to a higher tax liability.

Gold mutual fund taxation changes

Short-term capital gains

Old rule	New rule
If the units were sold within three years of purchase, the gains were added to the taxable income and taxed at the applicable income tax slab rates.	If investment is made on or after April 01, 2023 and sold within two years, the entire gain is added to the investors' income and taxed according to the applicable slab rate.

Remark: A shorter holding period will promote medium-term investments.

Long-term capital gains

Old rule	New rule
If the units were purchased before March 31, 2023, and sold after three years, 20 per cent tax on the gains was applicable, along with indexation benefit.	If investment is made on or after April 01, 2023 and sold after March 31, 2025: gains are taxed at 12.5 per cent, provided the holding period is more than two years.
If the units were purchased after April 1, 2023, the gains were added to the taxable income and taxed at the applicable income tax slab rates.

Remark: A shorter holding period will make buying mutual funds slightly more beneficial but the loss of indexation benefit will increase the tax liability upon sale.

Gold ETF (exchange-traded fund) taxation changes

Short-term capital gains

Old rule	New rule
If the units were sold within three years, the gains were added to the taxable income and taxed at the applicable income tax slab rates.	If investment is made on or after April 01, 2023 and sold on or before March 31, 2025, entire gain is added to the investors' income and taxed according to the applicable slab rate.
	If sold after March 31, 2025, the gains will be added to the investor's taxable income and taxed at applicable slab rate, if sold within one year of purchase.

Remark: The holding period for ETFs have become less than mutual funds, thus, incentivising medium-term investors to shift to ETFs.

Long-term capital gains

Old rule	New rule
If the units were purchased before March 31, 2023 and sold after three years, a 20 per cent tax on gains was applicable, along with indexation benefits.	If investment is made on or after April 01, 2023 and sold on or before March 31, 2025, the entire gain is added to the investors' income and taxed according to the applicable slab rate.
If the units were purchased after April 1, 2023, the gains were added to the taxable income and taxed at the applicable income tax slab rates.	If sold after March 31, 2025, the gains will be taxed at 12.5 per cent, if the holding period is more than one year.

Remark: The removal of indexation benefit will offset the benefit of reduced holding periods.

SGB (Sold in the secondary markets)

Short-term capital gains

Old rule	New rule
If the bonds were sold within three years: the gains were added to the taxable income and taxed at the applicable income tax slab rates.	If the bonds are sold within 12 months, the gains will be added to the taxable income and taxed at the applicable income tax slab rates.

Remark: The reduction in holding period may benefit short-term investors in SGB.

Long-term capital gains

Old rule	New rule
If the bonds were sold after three years, a 20 per cent tax on gains would be payable with the benefit of indexation.	If the bonds are sold after 12 months, a 12.5 per cent tax on gains will be applicable, without the benefit of indexation.

Remark: Loss of indexation may reduce appeal as a long-term investment.

SGB (Redemption to RBI)

Short-term capital gains

Old rule	New rule
No tax if sold at maturity or redeemed to RBI.	No tax if sold at maturity or redeemed to RBI.

Remark: No change in taxation.

Long-term capital gains

Old rule	New rule
No tax is payable if sold at maturity or redeemed to RBI.	No tax is payable if sold at maturity or redeemed to RBI.

Remark: No change in taxation.

Quick take

We have always been saying that " gold is not good as a long-term investment ". Equity has a much higher return potential in the long run.
That said, for long-term investors, Sovereign Gold Bonds (SGBs) held until maturity or sold to the Reserve Bank of India (RBI) remain the best option. The gains are 100 per cent tax-free.
For medium-term investors, gold ETF has become slightly more attractive.
Now, if a gold ETF is sold after 12 months, the gains will be considered long term and will be taxed at 12.5 per cent, albeit without indexation. Previously, one needed to hold the same investment for three years before being subjected to a 20 per cent tax with indexation.
Meanwhile, physical gold still remains unfavourable due to the high holding cost and making charges.