Gold buying on Dhanteras: The tax traps you must know before you buy or sell

With gold prices touching lifetime highs this festive season, Indians are once again lining up to buy the yellow metal — as a mark of prosperity, a safe investment, or a precious gift.

However, amid the glitter of Dhanteras shopping, investors often overlook a crucial detail: gold profits are not tax-free, and different forms of gold are subject to varying tax rules.

Physical gold: Jewellery, coins, and bars

Profits from selling physical gold are treated as capital gains. If you sell within two years, the gain qualifies as short-term capital gains (STCG) and is taxed as per your income slab.

After two years, it becomes long-term capital gains (LTCG), taxed at 12.5% plus surcharge and cess, effective July 23, 2024.

Earlier, investors could reduce taxable gains through indexation benefits — adjusting the purchase price for inflation — but this benefit no longer applies. Buyers also pay 3% GST on gold and up to 5% on jewellery making charges.

“Profits from the sale of gold jewellery are treated as capital gains, with taxation determined by the holding period,” explains Dinkar Sharma, Company Secretary and Partner at Jotwani Associates.

He advises maintaining proper bills, invoices, or valuation certificates to prove the purchase cost and date during scrutiny.

Sovereign Gold Bonds (SGBs): The tax-efficient choice

Issued by the Reserve Bank of India, SGBs are among the most tax-friendly gold investments. The 2.5% annual interest is taxable under “Income from Other Sources,” but capital gains on redemption after maturity (8 years) are completely tax-free.

If sold before maturity, gains within 36 months are STCG (taxed per slab), and after 36 months are LTCG (taxed at 20% with indexation). This makes SGBs ideal for long-term, formal gold investments.

Gold ETFs and Gold Mutual Funds

These digital options offer convenience and liquidity but follow similar tax rules as non-equity mutual funds:

• STCG (held ≤ 36 months): taxed at your income slab rate.
• LTCG (held > 36 months): taxed at 20% with indexation.
• Dividends: fully taxable.

Inherited gold

Gold received through inheritance is not taxable at the time of receipt. However, if sold, capital gains tax applies based on the original purchase cost and date of the previous owner, with indexation available from that date.

TDS and TCS rules

Large transactions come under tax reporting rules:

• TCS (Tax Collected at Source) applies to purchases above ₹10 lakh in a financial year under Section 206C(1H).
• PAN disclosure is mandatory.
• Businesses with high turnover must also deduct TDS on applicable gold sales.

The gold taxation system encourages long-term, traceable investments like Sovereign Gold Bonds, while tightening checks on physical gold deals.

As festive demand peaks, experts say it’s wise to focus not just on glitter — but on tax clarity, documentation, and compliance. After all, smart planning today could ensure your gold truly shines — even after taxes.