Gold prices have hit new highs in India. If you are looking to cash in on higher prices, you should know the income tax implications. Apart from physical forms like jewellery, coins and bars, gold can also be held in electronic forms like gold ETFs or exchange traded funds (ETFs), gold mutual funds and sovereign gold bonds. Income tax rules levied on sale of gold also depends on the form of gold holding and time period of holding.

Income tax rules on sale of gold

The most common form of gold holding in India is gold jewellery. It is to be noted that no income tax is levied on inheritance. But subsequent sale of the inherited gold is taxable. Tax experts suggest that proper documentation should be maintained to show that the gold was received under an inheritance.

“The taxpayers should maintain the documentation like invoice, receipt, etc. for purchase of gold by self and copy of inheritance documents like will, etc. for the gold which is inherited," says Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates LLP.

Profits on sale of physical gold and gold jewellery purchased by yourself or received under an inheritance becomes taxable under “capital gains". If the gold is held for more than 36 months, profits are treated as long term and taxed at flat 20%. Else, they are taxed as short term at your slab rate.

“For gold inherited from parents, the cost shall be the price they had paid to purchase the same. Further to determine the period of holding, the period for which the gold was held by them would also be considered to determine if the asset is long term (LTCG) or short term (STCG). The LTCG shall be taxed @20% and the STCG shall be taxed as per the slab rate," adds Sehgal.

The income tax implications remain the same for gold jewellery purchased by you, he adds. The period of holding is taken from the date it was purchased by you. If the period exceeds 36 months, the gain shall be long term and if it 36 months or less, it shall be short term and taxed accordingly.

While calculating long-term capital gains, the seller gets the benefit of indexation. Or, in other words, the cost of acquisition is adjusted according to inflation, according to Cost Inflation index (CII) as notified by the tax authority, which helps to bring down your capital gains.

For gold that purchased by you or originally by your parent before April 1, 2001, you have the option of taking the Fair Market Value (FMV) of the jewellery as on April 1, 2001, instead of actual costs incurred to purchase the asset. The Fair Market Value can then be indexed to determine your cost of acquisition. This helps to get the benefit of indexation.

Income tax on gains from gold MF, gold ETFs, digital gold

Gains from sale of gold ETFs or gold mutual funds or digital gold (offered by banks, fintech and brokerage companies, in partnership with MMTC) are taxed in the same way as physical gold.

Sovereign gold bonds

Gold bonds, which are denominated in grams of gold, are issued by Reserve Bank of India on behalf of the Government of India from time to time. Capital gains arising from redemption of sovereign gold bonds have been exempted from tax. Sovereign gold bonds have a maturity period of eight years.