Gold ETF, Silver ETF or Gold/Silver Mutual Fund: Taxation in India (Complete Guide under Income-tax Act, 2025)

Gold ETF, Silver ETF or Gold/Silver Mutual Fund: Taxation in India (Complete Guide under the Income-tax Act, 2025)

Gold and Silver have traditionally been one of the most preferred investment avenues for Indian investors. However, with increasing digitization of investments, investors today have multiple options to gain exposure to precious metals without physically holding them. Among the most popular investment options are Gold ETFs, Silver ETFs, Gold Mutual Funds and Silver Mutual Funds.

While these investment products may appear similar from an investment perspective, their taxation under the Income-tax Act, 2025 differs significantly, particularly with respect to the holding period required for long-term capital gains.

In this article, we shall comprehensively discuss the taxation of Gold and Silver ETFs, Gold Mutual Funds and Silver Mutual Funds under the Income-tax Act, 2025, along with practical examples and a comparison of their tax implications.

What are Gold ETFs and Silver ETFs?

Gold Exchange Traded Funds (Gold ETFs) and Silver Exchange Traded Funds (Silver ETFs) are mutual fund schemes that invest predominantly in physical gold or silver and are listed on recognized stock exchanges.

These units are traded through a Demat Account in the same manner as equity shares.

There ETFs derive their value from prices of Gold or silver. Since the units are listed on recognized stock exchanges, they are treated as listed non-equity securities for the purpose of capital gains taxation.

What are Gold Mutual Funds and Silver Mutual Funds?

Gold Mutual Funds and Silver Mutual Funds generally do not invest directly in physical gold or silver.

Instead, these schemes primarily invest in units of Gold ETFs or Silver ETFs and therefore operate as Fund of Funds (FoF).

Unlike ETFs, these mutual funds are not listed on recognized stock exchanges and investors purchase or redeem units directly with the Asset Management Company (AMC) based on the applicable Net Asset Value (NAV).

This distinction between listed and unlisted units forms the basis of the difference in their taxation.

Why is it important to understand distinction beatween Gold ETFs and Silver ETFs?

Although both investment options provide exposure to precious metals, their holding period for determining whether the capital gain is Short-Term or Long-Term is different.

As a result, two investors earning exactly the same gain may end up paying different taxes merely because they invested through different investment vehicles.

Understanding this distinction is therefore essential for proper tax planning and correct reporting in the Income Tax Return.

Taxation of Gold and Silver ETFs under the Income-tax Act, 2025

For taxation purposes, Gold ETFs and Silver ETFs are treated as listed non-equity securities.

Short-Term Capital Gain (STCG)

Where ETF units are transferred after holding them 12 months or less from the date of acquisition, the gains shall be treated as Short-Term Capital Gains (STCG).

Such gains shall be taxable at the normal slab rates applicable to the taxpayer.

Accordingly, if an individual falls in the 30% tax bracket, the short-term capital gains shall also be taxable at 30% (plus applicable surcharge and Health & Education Cess).

Long-Term Capital Gain (LTCG)

Where ETF units are transferred after holding them for more than 12 months, the gains shall qualify as Long-Term Capital Gains (LTCG).

Such gains are taxable at: 12.5%

The benefit of indexation is not available.

Applicable surcharge and Health & Education Cess shall also apply.

Taxation of Gold and Silver Mutual Funds (Fund of Funds)

Gold Mutual Funds and Silver Mutual Funds are generally structured as Fund of Funds (FoFs).

Since these units are not listed on a recognized stock exchange, a different holding period applies for determining long-term capital gains.

Short-Term Capital Gain

Where units are sold within 24 months from the date of acquisition, the gains shall be treated as Short-Term Capital Gains.

Such gains shall be taxable at the normal slab rates applicable to the investor.

Long-Term Capital Gain

Where the units are transferred after more than 24 months, the gains become Long-Term Capital Gains.

The tax rate shall be:

12.5% without indexation.

Comparative Taxation of Gold ETF, Silver ETF and Gold/Silver Mutual Fund

Practical Illustration

Suppose Mr. A invests ₹10,00,000 in a Gold ETF and another ₹10,00,000 in a Gold Mutual Fund on the same day.

After 18 months, both investments are sold for ₹12,00,000.

Gold ETF

• Sale Value – ₹12,00,000
• Cost – ₹10,00,000
• Gain – ₹2,00,000

Since the ETF has been held for more than 12 months, the gain qualifies as Long-Term Capital Gain.

Tax payable:

₹2,00,000 × 12.5%

= ₹25,000 (plus applicable surcharge and cess)

Gold Mutual Fund

Sale Value – ₹12,00,000

Cost – ₹10,00,000

Gain – ₹2,00,000

Since the units have been held for only 18 months, the gain continues to remain Short-Term Capital Gain because the required holding period is more than 24 months.

If Mr. A falls in the highest tax bracket,

Tax payable:

₹2,00,000 × 30%

= ₹60,000 (plus surcharge and cess)

This example clearly demonstrates that the same investment gain can result in substantially different tax liabilities merely because of the investment vehicle chosen.

Is Securities Transaction Tax (STT) Applicable?

No.

Although Gold ETFs and Silver ETFs are traded on recognized stock exchanges, they are not equity-oriented securities.

Accordingly, the concessional capital gains provisions applicable to equity shares and equity-oriented mutual funds do not apply merely because they are listed.

Is Indexation Benefit Available?

No.

Following the amendments made by the Finance (No. 2) Act, 2024, indexation benefit is no longer available on transfer of Gold ETFs, Silver ETFs, Gold Mutual Funds or Silver Mutual Funds.

Long-term capital gains are taxable at 12.5% without indexation, subject to the applicable transitional provisions where relevant.

Which Investment Option is More Tax Efficient?

From a taxation perspective, Gold ETFs and Silver ETFs are generally more tax-efficient, particularly where the intended holding period is between 12 months and 24 months.

Since the holding period required for long-term capital gains is only 12 months, investors become eligible for the concessional long-term capital gains tax rate much earlier.

On the other hand, investors who prefer investing through Systematic Investment Plans (SIPs) and do not wish to maintain a Demat Account may find Gold or Silver Mutual Funds more convenient despite the longer holding period for long-term taxation.

Important Points Every Taxpayer Should Remember

• Gold ETFs and Silver ETFs are treated as listed non-equity securities.
• Gold and Silver Mutual Funds generally operate as Fund of Funds (FoFs).
• Long-term capital gains arise after 12 months in case of ETFs.
• Long-term capital gains arise after 24 months in case of Gold/Silver Mutual Funds.
• Short-term capital gains are taxable at the applicable slab rates.
• Long-term capital gains are taxable at 12.5% without indexation.
• No Securities Transaction Tax (STT) benefit is available.
• Proper classification of the investment is essential while reporting capital gains in the Income Tax Return.

Conclusion

Gold ETFs, Silver ETFs, Gold Mutual Funds and Silver Mutual Funds all provide exposure to precious metals (even without the investor actually holding the metal),

Their tax treatment under the Income-tax Act, 2025 is not identical.The most significant distinction lies in the holding period prescribed for long-term capital gains, which directly impacts the tax liability of investors. While Gold and Silver ETFs qualify for long-term capital gains after 12 months, Gold and Silver Mutual Funds generally require a holding period of more than 24 months.

Investors should therefore evaluate not only the investment returns but also the tax implications before selecting the appropriate investment vehicle. A clear understanding of these provisions can help taxpayers optimize their post-tax returns and ensure accurate reporting of capital gains in their Income Tax Returns.

Frequently Asked Questions (FAQs) on Gold ETFs and Silver ETFs

1. Are Gold ETFs and Gold Mutual Funds taxed in the same manner?

No. Although both provide exposure to gold, Gold ETFs are listed securities requiring a holding period of more than 12 months for long-term capital gains, whereas Gold Mutual Funds generally require a holding period of more than 24 months.

2. Is indexation available on Gold ETFs or Gold Mutual Funds?

No. Long-term capital gains on these investments are taxable at 12.5% without indexation.

3. Are Silver ETFs taxed differently from Gold ETFs?

No. The taxation of Gold ETFs and Silver ETFs is identical under the Income-tax Act, 2025.

4. Are SIP investments in Gold Mutual Funds eligible for the 12-month holding period?

No. Each SIP instalment is treated as a separate investment, and each unit must satisfy the prescribed holding period of more than 24 months to qualify as a long-term capital asset.

5. Which investment is more tax-efficient—Gold ETF or Gold Mutual Fund?

For investors with a holding period between 12 and 24 months, Gold ETFs are generally more tax-efficient because they qualify for long-term capital gains taxation after only 12 months.

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(The author is a Chartered Accountant and can be contacted at info@youronlinefilings.in or capratikanand@gmail.com or Mobile: +91-9953199493)