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NISM-Series-X-B: Investment Adviser (Level 2) · Taxation of Other Products

Taxation of Gold, Gold ETFs and Sovereign Gold Bonds

Updated 11 October 2026 · Fact-checked

Physical gold, gold ETFs and gold mutual funds are taxed as capital gains, with different holding periods. Sovereign Gold Bonds pay 2.5% interest taxed at slab rate. Capital gains on SGB redemption at maturity are exempt for an individual. Identify the product, then the holding period, then the rate.

Understand Taxation of Gold, Gold ETFs and Sovereign Gold Bonds

Gold can be held in four common forms: physical gold (coins, bars, jewellery), gold ETFs (units listed on an exchange), gold mutual funds (usually funds of funds that invest in gold ETFs) and Sovereign Gold Bonds (SGBs) issued by the RBI on behalf of the Government of India. The tax depends on the form, not on the fact that the underlying is gold.

Physical gold is a capital asset. Gain on sale is a capital gain. The long-term holding period is more than 24 months. A gain on sale within 24 months is short-term and is added to your income and taxed at slab rates. A long-term gain is taxed at 12.5% without indexation (for transfers on or after 23 July 2024). Cess is extra.

A gold ETF is a listed security, so the long-term holding period is more than 12 months. Short-term gain is taxed at slab rate. Long-term gain is taxed at 12.5% without indexation. A gold mutual fund (fund of funds) holds units of gold ETFs and its own units are unlisted, so the long-term period is 24 months and the long-term rate is 12.5%. Check the rule version your workbook uses, because older rules used 36 months and indexation for gold and unlisted units.

Sovereign Gold Bonds are government securities denominated in grams of gold. They pay fixed interest of 2.5% a year on the issue amount, paid half-yearly. This interest is taxable as income from other sources at your slab rate. No TDS is deducted on it. The bond has a tenor of 8 years with an exit option after the fifth year on interest payment dates.

The SGB's special benefit is on redemption. When an individual holds the bond to maturity and RBI redeems it, the gain is exempt from capital gains tax. If you sell on the exchange before maturity, the gain is taxable like any listed security. A long-term gain on a listed SGB applies after 12 months.

Key formulas to remember

Capital gain
Capital gain = Sale value − Cost of acquisition − Transfer expenses
Use for physical gold, gold ETFs, gold funds and SGBs sold before maturity.
Physical gold holding period
Long-term if held for more than 24 months
Otherwise short-term and taxed at slab rate.
Gold ETF holding period
Long-term if held for more than 12 months
Listed units. Short-term gain is taxed at slab rate.
Gold mutual fund (fund of funds)
Long-term if held for more than 24 months
Units are unlisted. Short-term gain is taxed at slab rate.
Long-term capital gains rate
12.5% without indexation (transfers on or after 23 July 2024)
Applies to physical gold, gold ETFs and gold funds. Add cess. Older rules used indexation.
SGB interest
Annual interest = 2.5% × issue amount, paid half-yearly
Taxable at slab rate as income from other sources. No TDS.
SGB redemption at maturity
Capital gain on redemption by RBI at maturity = exempt for an individual
Not exempt if sold before maturity on the exchange.

How to solve Taxation of Gold, Gold ETFs and Sovereign Gold Bonds questions

Follow this order for any question on taxation of gold products.

  1. 1Identify the product: physical gold, gold ETF, gold mutual fund or SGB.
  2. 2Separate the income types. For an SGB, interest and capital gain are taxed differently.
  3. 3Find the holding period from purchase date to sale date.
  4. 4Apply the threshold: 24 months for physical gold and gold funds, 12 months for gold ETFs and listed SGBs.
  5. 5If short-term, add the gain to income and tax at slab rate. If long-term, apply 12.5% without indexation.
  6. 6For an SGB, check whether it was redeemed at maturity by an individual. If yes, the gain is exempt.
  7. 7Compute the gain, apply the rate, then add cess of 4% only if the question asks for it.

Quickest way: Product, period, rate in three checks

When to use it: Use for MCQs that give a product, a holding duration and ask which tax applies.

  1. Say the product aloud: physical 24, ETF 12, fund 24, SGB 12 if sold early.
  2. If the SGB is redeemed at maturity, answer exempt and stop.
  3. Compare months held with the threshold. Long-term means 12.5%; short-term means slab rate.

Common mistakes in Taxation of Gold, Gold ETFs and Sovereign Gold Bonds

  • Applying 12 months to physical gold.

    You remember the 12-month rule for listed shares and use it everywhere.

    Fix: Only listed securities such as gold ETFs use 12 months. Physical gold and gold fund units use 24 months.

  • Saying SGB interest is exempt because the capital gain is exempt.

    The maturity exemption is the best-known SGB feature.

    Fix: Interest of 2.5% is always taxable at slab rate. Only the redemption gain at maturity is exempt.

  • Treating an SGB sold on the exchange as exempt.

    You assume the bond itself is tax-free.

    Fix: The exemption needs redemption at maturity. A sale before maturity gives a taxable capital gain.

  • Treating a gold fund of funds like a gold ETF.

    Both are called gold funds and both hold gold exposure.

    Fix: The fund's own units are unlisted, so use 24 months. The ETF is listed, so use 12 months.

  • Using indexation for long-term gains.

    Older study notes gave 20% with indexation.

    Fix: For transfers on or after 23 July 2024, use 12.5% without indexation, unless the question states an older rule.

  • Expecting TDS on SGB interest.

    Bank deposit interest has TDS, so you assume the same here.

    Fix: No TDS is deducted on SGB interest, but you must still report it.

Worked examples

Example 1

Ravi buys gold coins for ₹2,00,000 and sells them after 30 months for ₹3,00,000. Ignoring expenses, what is the tax including 4% cess? (a) ₹12,500 (b) ₹13,000 (c) ₹20,000 (d) ₹30,000

Show the solution
  1. Holding period is 30 months, which is more than 24 months, so the gain is long-term.
  2. Gain = ₹3,00,000 − ₹2,00,000 = ₹1,00,000.
  3. Tax at 12.5% = ₹12,500.
  4. Cess at 4% of ₹12,500 = ₹500.
  5. Total = ₹12,500 + ₹500 = ₹13,000.

Answer: (b) ₹13,000

Example 2

Meera bought 10 grams of SGB at an issue price of ₹6,000 per gram, so ₹60,000. She holds it to maturity and RBI redeems it for ₹1,00,000. What is her taxable income from the bond in each full year, and the tax on redemption gain?

Show the solution
  1. Annual interest = 2.5% × ₹60,000 = ₹1,500.
  2. This interest is taxed at her slab rate as income from other sources, with no TDS.
  3. Redemption gain = ₹1,00,000 − ₹60,000 = ₹40,000.
  4. She is an individual and RBI redeems the bond at maturity, so the gain is exempt.
  5. Tax on the ₹40,000 gain = nil.

Answer: Taxable interest of ₹1,500 each year at slab rate; redemption gain of ₹40,000 is exempt.

Exam tips

  • Memorise the thresholds as a set: physical 24 months, gold ETF 12 months, gold fund 24 months.
  • When a question mentions SGB, look for the words maturity and individual. They usually decide the answer.
  • Read the question for any dates. A transfer before 23 July 2024 may use older rules, so check what the question asks.
  • Negative marking is 25% of the question's marks, so skip if you cannot separate ETF from fund of funds.
  • Remember that SGB interest is taxable even when the gain is exempt.

Practice questions from Taxation of Other Products

Taxation of Gold, Gold ETFs and Sovereign Gold Bonds: frequently asked questions

How is a gold ETF taxed in India?

Gold ETF units are listed. Gains on units held 12 months or less are short-term and taxed at your slab rate. Gains after more than 12 months are long-term and taxed at 12.5% without indexation.

Is SGB maturity gain tax-free?

Yes, for an individual when RBI redeems the bond at maturity. The gain is exempt from capital gains tax. The 2.5% annual interest is still taxable.

What is the difference between physical gold and SGB taxation?

Physical gold gains are taxable, with a 24-month long-term threshold. An SGB pays taxable interest, but redemption gain at maturity is exempt. Selling an SGB early creates a taxable capital gain.

Is there TDS on SGB interest?

No TDS is deducted on SGB interest. You still add it to your income and pay tax at your slab rate.