New Income Tax Rules on Sale of Gold ETF & Gold Mutual Funds

Summary: Effective April 1, 2025, new capital gains tax rules will apply to Gold ETFs and Gold Mutual Funds. Gold ETFs trade like stocks, representing physical gold, while Gold MFs invest in Gold ETFs and related instruments. Prior to this, taxation varied based on holding periods and indexation. Post-April 1, 2025, long-term capital gains (LTCG) on Gold ETFs held over 12 months will be taxed at 12.5% without indexation; short-term capital gains (STCG) will be taxed at applicable income tax slabs. For Gold MFs, LTCG applies after a 24-month holding period, also at 12.5% without indexation. Physical and digital gold sales follow similar rules, with LTCG at 12.5% after 24 months and STCG at slab rates. Tax calculations depend on investment and sale dates, impacting the final tax liability.

1. Capital gains tax rules on the sale of Gold ETFs (Exchange-Traded Funds) and gold MFs (Mutual Funds) have changed from 01.04.2025.

2. Before discussing the specifics of the new rule, let’s briefly discuss Gold ETFs and Gold MFs and how they differ.

2.1 Gold ETFs are traded on the stock exchange like individual stocks. They offer ownership of physical gold in demat form, providing a convenient way to invest in this precious metal. These are passively managed and primarily invested in gold bullion. Each unit of a Gold ETF is equivalent to 1 gram of gold and is backed by high-purity physical gold.

2.2 Gold Mutual Funds (MFs) are open-ended schemes that primarily invest in Gold ETFs, allowing investors to invest in gold without needing a Demat account. These funds pool money from investors to purchase gold or gold-linked securities. Gold mutual funds focus on gold and related instruments, including bullion, coins, stocks of gold mining companies, and Gold ETFs

3. Budget 2024 has introduced significant changes for all asset classes, including gold, mutual funds, equity, real estate, etc., and revised the capital gains tax rate on gold funds or gold exchange-traded funds (ETFs). Till 23.07.2024, international mutual funds, gold funds/ETFs, were taxed like domestic debt funds. Investments of less than three years were classified as short-term, and those beyond were termed long-term. Short-term capital gains were taxed as per the applicable income tax slab. Long-term capital gains attracted a tax rate of 20% after providing the indexation benefit.

Following Budget 2024, the long-term capital gains on domestic and foreign equity funds/ETFs/FOFs were to be taxed at 12.5%. The new rules are effective from July 23, 2024.

However, Gold Mutual Funds and Gold ETFs will be subject to the new capital gains tax rules starting from April 1, 2025.

4. Long-term capital gains (LTCG) on gold ETFs held for more than 12 months will be taxed at 12.5% without indexation, while short-term capital gains (STCG) will be taxed at the applicable income tax slab rates with effect from 01.04.2025.

5. The taxation on Gold ETFs is not as straightforward as it seems. It varies depending on the date of investment and the date of redemption. There has been a history of changes in the tax treatment of Gold ETFs over time. Tax rates may vary depending on the applicable rules at the time of redemption and any future changes in tax regulations. It can be summarized in the table below:

Let us simplify the dates and tax implications with the help of an illustration.

Illustration: Mr. Anupam invested ₹50,000 in Gold ETF, and the sale value of the investment was Rs 90,000 on the given date. (For simplicity, we assume the sale value remains the same across different dates.) The capital and tax thereon, based on the date of investment and sale, are shown in the table below:

6. Capital Gain on Sale of Gold MF (Mutual Funds): The Capital Gain Tax rules and the date of amendment for Gold Mutual Funds (MFs) are the same. The only difference is that effective from 01.04.2025, a holding period of 24 months will be considered as Long Term for calculating Long-Term Capital Gains (LTCG).

For example, Mr. Anupam invested Rs. 50,000 in a Gold Mutual Fund (MF) on 17.06.2023. He decided to redeem his investment for Rs. 90,000 /-on 28.10.2025, 2 years later (after the 01.04.2025 amendment).

Since Mr. Anupam has made his investment for 24 months (which is 2 years), it will be classified as Long-Term Capital Gains (LTCG), and Capital Gain Tax will be calculated as 12.5% on Rs 40,000, i.e. 5,000.

If he decides to redeem the investment on 01.04.2025, less than 24 months, Rs. 40000/- will be taxed at the applicable Slab Rates.

7. Capital Gain Tax on Physical Gold: Gold jewelry can be bought in necklaces, earrings, rings, etc. There is no income tax on buying gold jewelry. However, GST 3% is applicable on the purchase of gold jewelry, plus making charges. The exchange of old gold jewelry will be considered as the sale of old gold. The capital gains tax rules will apply to the sale of old gold jewellery

The government has changed the capital gains taxation rules for all asset classes, including gold. New rules for Gold and Digital Golds are effective from July 23, 2024.

Long-Term Capital Gain (LTCG) 12.5 %, without indexation, will be applicable if the gold is sold after holding it for more than 24 months. Before 23.07.2024, the LTCG rate was 20% with indexation.

The gain on sale of Gold will be considered as Short-Term Capital Gain (STCG) and will be taxed at the slab rate applicable to the individual’s Income if the holding period is less than 24 months.

8. Digital Gold: Digital gold is a way to invest in gold online, without having to physically own it. One can buy digital gold online. The amount of gold is kept in an insured vault, and the value is linked to the price of physical gold. An example of digital gold is Tanishq Digital Gold.

The income tax laws on buying and selling digital gold are the same as physical gold.

Disclaimer: The article is for educational purposes only

The author can be approached at caanitabhadra@gmail.com.