Tax on Gold in India: What Every Buyer Should Know
Gold is a popular investment and savings option in India. It is a symbol of prosperity and serves as a financial hedge against economic uncertainty. Whether you are purchasing gold ornaments for a wedding, as family heirlooms or as an investment, understanding the rules around the applicable tax on gold is important.
The tax on your gold depends on whether you are purchasing it, selling it, holding it or receiving it as a gift. The applicable taxes will also differ depending on whether you own physical gold, jewellery or other gold-related financial assets.
Tax When Buying Gold
When purchasing physical gold in India, whether in the form of jewellery, gold coins or bullion bars, you incur indirect taxes at the point of sale. The primary gold tax in India applied at the time of purchase is the Goods and Services Tax (GST). GST is broken down into two distinct components:
- GST on precious metal value: A flat rate of 3% GST is levied on the intrinsic value of the gold itself.
- GST on making charges: Another 5% GST is applied separately to the making charges.
For instance, if you buy a gold chain where the value of the gold metal is ₹1,00,000 and the making charges are ₹10,000, the GST charges will be as follows:
- GST on the gold (3% on ₹1,00,000) = ₹3,000
- GST on the making charges (5% on ₹10,000) = ₹500
- Total tax at purchase: ₹3,500
The tax on gold levied at the time of purchase can increase the amount you pay upfront. Buyers should check the invoice carefully and ensure that the gold value, making charges and GST are stated clearly. You should also retain the purchase invoice.
Beyond verifying the purchase, the invoice serves as proof of the purchase price to calculate capital gains when selling the gold.
Tax When Selling Gold
Selling physical gold can result in a capital gain on the profits earned and is subject to direct taxation. Gains are charged based on the difference between your acquisition cost and the amount you receive when you sell it. The rules for tax on selling gold are categorised into two types:
- Short-term capital gains (STCG): If you sell physical gold within 24 months or 2 years of purchase, the profit is classified as a short-term capital gain. The profit from the sale is added to your total annual income and is taxed according to the relevant income tax slab rate.
- Long-term capital gain on gold (LTCG): If you hold physical gold for more than 24 months, the profit is charged as a long-term capital gain. LTCG on physical gold is taxed at a rate of 12.5% with applicable surcharge and cess.
Holding Period of GoldCapital Gains TypeTax Rate
Up to 24 monthsShort-Term Capital GainAs per your individual income tax slab
More than 24 monthsLong-Term Capital Gain12.5% (plus surcharge and cess)
Tax on Holding Gold
Simply owning and holding physical gold does not result in an annual wealth tax under the current tax system. In other words, you do not pay an annual tax if you own or inherit a certain amount of gold jewellery or gold bars.
However, during tax audits or income tax inquiries, you should be able to explain the source of the funds to acquire the metal. Keeping proper documentation, such as purchase invoices, inheritance records and gift documentation, can help establish ownership.
There is no limit to the maximum amount of gold you can own and hold if you can explain the source of funds you used to buy it. If you have no source of income, you can still keep gold at home at specified limits, as described by the Central Board of Direct Taxes.
- Married women: Up to 500 grams
- Unmarried women: Up to 250 grams
- Male member (married and unmarried): Up to 100 grams
Gold within these thresholds will not be seized during an inquiry, even if proper documentation is not available, but it must match reasonable family heritage norms.
Does Taking a Gold Loan Attract Tax?
No. Taking a gold loan does not attract any income tax or capital gains tax.
When you take a gold loan, you pledge eligible gold jewellery as security and receive a loan against it. As ownership is not transferred and the gold is pledged as collateral, taking the loan does not create a capital gain. Furthermore, the principal amount you receive is a loan disbursement and is not taxable income.
However, you must repay the loan on the agreed terms. If you fail to repay the gold loan, the lender can sell the gold to recover the dues, and the tax implications can depend on the circumstances of the transaction.