Tax on Gold, Sovereign Gold Bonds & Digital Gold in India: Complete Guide for AY 2026-27

Gold has been India's favourite investment for generations. Whether you hold physical jewellery, gold ETFs, sovereign gold bonds (SGBs), or digital gold through apps, each form carries different tax rules — and getting them wrong can mean paying more than you need to.

This guide breaks down the taxation of every common form of gold investment for AY 2026-27 (FY 2025-26), with practical examples and a comparison table so you know exactly what to expect when you file.

How Gold Investments Are Classified for Tax

The Income Tax Act treats gold as a capital asset. When you sell gold at a profit, the gain is taxed as a capital gain. The rate depends on two things:

1. The type of gold investment (physical, ETF, SGB, or digital)
2. How long you held it (short-term vs long-term)

The holding period threshold and applicable tax rates differ across gold types — this is where most taxpayers get confused.

Physical Gold & Gold Jewellery

Physical gold includes jewellery, coins, bars, and biscuits. This is the most common form of gold held by Indian households.

Holding Period & Tax Rates

Starting from FY 2024-25, the LTCG rate on physical gold changed to 12.5% without indexation (previously 20% with indexation). This is an important shift — for gold held over many years, the removal of indexation can increase your effective tax compared to the old regime.

Practical Example

Ravi bought gold jewellery worth ₹5,00,000 in March 2022. He sells it in January 2026 for ₹7,50,000.

• Purchase price: ₹5,00,000
• Sale price: ₹7,50,000
• Capital gain: ₹2,50,000
• Holding period: ~46 months (more than 24 months → LTCG)
• Tax: ₹2,50,000 × 12.5% = ₹31,250

Under the old rules (20% with indexation), the indexed cost would have reduced the taxable gain significantly. With the new flat 12.5% rate, the calculation is simpler but not always cheaper.

Inherited or Gifted Gold

If you sell inherited gold, you still owe capital gains tax. The cost of acquisition is what the original owner paid, and the holding period includes the time they held it. If the gold was acquired before 1 April 2001, you can use the fair market value as on 1 April 2001 as your cost.

Gold ETFs and Gold Mutual Funds

Gold ETFs (like Nippon India Gold ETF, HDFC Gold ETF) and gold mutual funds are treated as listed securities on a recognised exchange for tax purposes.

Holding Period & Tax Rates

Gold ETFs enjoy a shorter qualifying period for LTCG — just 12 months compared to 24 months for physical gold. This makes them more tax-efficient if you're planning a medium-term investment.

Practical Example

Priya invested ₹3,00,000 in a gold ETF in April 2024. She redeems in June 2025 for ₹3,60,000.

• Capital gain: ₹60,000
• Holding period: 14 months (more than 12 months → LTCG)
• Tax: ₹60,000 × 12.5% = ₹7,500

If she had sold at 11 months, the same ₹60,000 gain would be taxed at her slab rate — potentially ₹18,000 at the 30% bracket. Timing matters.

Sovereign Gold Bonds (SGBs)

SGBs, issued by the RBI on behalf of the Government of India, get the most favourable tax treatment of any gold investment. This is by design — the government prefers you hold SGBs over physical gold.

Interest Income

SGBs pay a fixed interest of 2.50% per annum on the initial investment amount, paid semi-annually. This interest is fully taxable and added to your total income, taxed at your slab rate.

If you invested ₹5,00,000 in SGBs, you receive ₹12,500 per year as interest. If you're in the 30% bracket, you'd pay ₹3,750 in tax on this interest annually.

Capital Gains on SGBs

Here's where SGBs shine:

The complete exemption on maturity is a massive advantage. No other gold investment offers this.

Practical Example

Amit invested ₹8,00,000 in SGBs in 2018 at ₹3,200 per gram (250 grams). The bonds mature in 2026 when gold is priced at ₹7,800 per gram.

• Maturity value: 250 × ₹7,800 = ₹19,50,000
• Capital gain: ₹19,50,000 – ₹8,00,000 = ₹11,50,000
• Tax on capital gain: ₹0 (exempt on maturity)
• Total interest received over 8 years: ₹8,00,000 × 2.5% × 8 = ₹1,60,000 (taxed annually at slab rate)

Compare this with physical gold: the same ₹11,50,000 gain would attract ₹1,43,750 in LTCG tax. The SGB saves Amit over ₹1.4 lakh in taxes.

Digital Gold (PhonePe, Google Pay, Paytm, Groww)

Digital gold purchased through apps like PhonePe, Google Pay, or Groww is treated as physical gold for tax purposes. The underlying asset is actual gold stored in vaults by providers like Augmont or SafeGold.

Tax Treatment

The rules mirror physical gold exactly. Don't assume digital means it's treated like a financial security with a 12-month threshold — it's not.

GST on Purchase

When you buy digital gold, 3% GST is charged on the purchase price. This GST is part of your cost of acquisition, so it effectively reduces your taxable capital gain when you sell.

Comparison: Tax on Different Gold Investments

How to Save Tax on Gold Investments

1. Hold SGBs to Maturity

The simplest tax-saving strategy: buy SGBs and hold for 8 years (or redeem after 5 years through the early redemption window). The capital gain is entirely exempt.

2. Use Section 54F for Reinvestment

If you sell any gold investment at a long-term capital gain, you can claim exemption under Section 54F by reinvesting the net sale consideration (not just the gain) in a residential house property. The house must be purchased within 2 years or constructed within 3 years of the sale.

This works for all types of gold — physical, ETF, SGB, or digital.

3. Offset Gains with Capital Losses

Long-term capital losses from other assets (like equity shares or mutual funds) can be set off against LTCG from gold. Similarly, short-term capital losses can offset STCG from gold. If you've booked losses elsewhere in your portfolio, this is a useful strategy. For more on this, read our guide on capital gains tax on stocks and mutual funds.

4. Time Your Sales

For gold ETFs, crossing the 12-month mark converts your gain from slab-rate STCG to 12.5% LTCG — a significant saving if you're in the 20% or 30% bracket. For physical and digital gold, the threshold is 24 months.

Reporting Gold Income in Your ITR

Gold-related income must be reported in two places:

1. Capital gains: Report under Schedule CG (Capital Gains) in your ITR. Use ITR-2 if you have capital gains — ITR-1 does not support this. Check our ITR-1 vs ITR-2 guide if you're unsure which form applies to you.

2. SGB interest: Report under "Income from Other Sources" in your ITR.

Keep records of purchase invoices, demat statements, or app transaction history as proof of your cost of acquisition. For inherited gold, maintain documentation of the original purchase or a valuation report.

49Tax can automatically classify your gold gains as short-term or long-term and compute the correct tax — just enter your purchase and sale details, and the platform handles the rest.

Key Takeaway

If you're investing in gold for the long term, SGBs are the clear winner on tax efficiency — you earn interest, the capital gain is exempt at maturity, and there's no GST or storage cost. For shorter-term gold exposure, gold ETFs offer a 12-month LTCG threshold versus 24 months for physical and digital gold. Whichever form you hold, make sure you're reporting it correctly in ITR-2 and exploring Section 54F if you're planning a property purchase with the proceeds.