Gold and silver prices have been moving sharply, and many investors are quietly booking profits. But just when the gains look comforting, the tax calculation often comes as a surprise. The reason is simple, i.e., precious metals are not taxed in one single way. The tax depends on how you hold them, how long you hold them, and how you sell them.
Even a difference of a few months in your holding period can change your tax bill.
Indians invest in gold and silver in several ways. Some prefer jewellery, coins or bars. Others buy digital gold. Many investors now choose exchange-traded funds (ETFs), gold or silver mutual funds, and Sovereign Gold Bonds (SGBs).
Each option has its own rules on cost, liquidity and taxation. Understanding these rules is essential before you decide to sell.
HOW GAINS IN GOLD AND SILVER ETFS ARE TAXED
If you invest in gold or silver ETFs and hold them for more than one year, your gains are taxed at 12.5% as long-term capital gains (LTCG). However, if you sell within one year, the gains are treated as short-term capital gains (STCG) and taxed at 20%.
Gold and silver fund of funds follow slightly different rules. Here, you must hold the investment for at least two years to qualify for the 12.5% LTCG tax. If you sell before completing two years, the gains are added to your income and taxed according to your income-tax slab.
This difference in holding period is important. Selling even a few months early could mean paying a higher tax rate.
NO LTCG EXEMPTION LIKE EQUITY FUNDS
Many equity investors enjoy a long-term capital gains exemption of up to Rs 1.25 lakh per year. However, this benefit does not apply to gold and silver funds. Since these are not classified as equity-oriented instruments, they do not qualify for that exemption.
This means every rupee of taxable gain in gold and silver funds is subject to tax as per the applicable rules.
WHAT HAPPENS IF YOU MAKE A LOSS WITHIN ONE YEAR?
If you sell gold or silver ETFs or fund of funds within one year and incur a short-term capital loss, you can adjust that loss against short-term or long-term gains from other capital assets such as shares, other ETFs or equity mutual funds.
This helps reduce your overall tax liability. However, the nature of the transaction matters.
INTRADAY TRADING IN GOLD AND SILVER ETFs
Some investors trade gold and silver ETFs within the same day to benefit from price swings. In such cases, the profit is treated as speculative business income rather than capital gains.
These profits are added to your total annual income and taxed according to your income-tax slab rate.
Losses from intraday trades are treated as speculative losses. They can only be set off against speculative profits. For example, if you incur a loss in an intraday gold ETF trade but earn profit in another intraday trade in shares or ETFs, you will pay tax only on the net profit. But such losses cannot be adjusted against normal capital gains from delivery-based investments.
Delivery-based ETF trades, on the other hand, are treated as capital gains and follow the capital gains tax rules.
WAYS TO REDUCE TAX ON GOLD AND SILVER INVESTMENTS
Investors who wish to manage their tax burden can adopt a few sensible strategies.
Holding investments for the long term helps qualify for the lower 12.5% long-term capital gains tax rate. Tax-loss harvesting can also help. If you have losses in certain investments, you may set them off against gains to reduce the overall taxable amount.
Choosing ETFs and mutual funds instead of physical gold can also help avoid additional costs such as GST on purchase and making charges, which indirectly affect overall returns.
Simply put, gold and silver continue to attract investors, especially during uncertain times. They are often seen as safe assets. But taxation plays a crucial role in determining your final return.
Before booking profits, it is wise to check how long you have held the investment and how the gains will be taxed. A little planning can make a noticeable difference to your post-tax returns.
