Income tax rule for gold: The gold rate is now biased upward due to fears of an Israel-Iran war. Although the price of gold opened weakly on the Multi Commodity Exchange (MCX) today, it has increased 7.60 percent on the domestic market in April 2024 and has given gold investors a return of more than 15 percent year-to-date. Thus, it is crucial to understand how the income tax regulation relates to revenue recorded from gold investments at this point, when market analysts are still projecting a recovery in gold prices.

Recent Price Rallies for Gold

Anuj Gupta, Head of Commodity & Currency at HDFC Securities, commented on the current gold price increase, saying that, year-over-year, the gold rate is now ₹9,500 per 10 gm higher than its closure price of around ₹63,200 per 10 gm in 2023. This indicates that the YTD appreciation in gold prices is 15%. Similarly, the price of gold increased by 7.60 percent in April 2024. Nonetheless, the price of gold has increased by over ₹13,000 per 10 gm in just a year, a 22 percent increase from its price of about ₹59,500 per 10 gm in the previous year."

Gold-related Income Tax Regulations

"If the investment is in physical gold, then there will be a different set of income tax rules applicable on one's income from gold," said Mumbai-based tax and investment expert Balwant Jain in reference to the income tax regulations that apply to one's return from gold investments. “One must consider the investment time in order to determine their gold income. The income tax will be computed using the short-term capital gain rules if a person records a profit in gold after keeping it for less than three years; if they retain it for three years or more, the income tax will be computed under the long-term capital gain rules," he adds.

According to Balwant Jain, an investor's short-term gold profits are added to their net income, and income tax is withheld according to the appropriate income tax bracket that corresponds to their net yearly income. But income from gold is taxed at 20 percent plus cess, or 4 percent these days, for long-term capital gains. On the other hand, according to Balwant Jain, indexation benefits long-term capital gains on physical gold. 

Income Tax Policy for Digital Gold and Gold ETFs

The founder of Taxbuddy.com, Sujit Bangar, spoke on gold investment choices outside of physical gold: "A gold investor has an option to invest in other than physical gold as well. Investment choices for gold that are not tangible include gold exchange-traded funds (ETFs), gold mutual funds, and Sovereign Gold Bonds (SGB).

The creator of Taxbuddy.com discussed the taxation of digital gold investments, saying that "debt mutual fund schemes will be subject to taxation at the income tax slab rates corresponding to your net annual income as per the Budget 2023 amendment effective from 1st April 2023."

Income Tax on SGB Income 

"Redemption from SGB is available after three years of investment, and the funds redeemed are fully exempt from taxes." But, depending on the length of holding, either a short-term or long-term capital gain would be imposed if you sell your investment in exchange, according to Balwant Jain. According to him, if an investor has owned SGB for a year or less, short-term capital gains would be applied.