Gold has been a popular investment tool for most Indians, who use it not only as jewellery and a hedge against inflation but also as an income instrument for constant price gains. Gold prices have increased steadily over the past several years, thanks to the ever-changing economic and political landscape in India and abroad, which influences its cost. Gold investors consider the yellow metal a safe investment because of its price stability and stable returns over the long term. Investors also commonly use the yellow metal to diversify their investment portfolios and reduce market risks. However, there are different gold products that are taxed accordingly.

Here is how taxation rules apply to different gold products:

Digital Gold Tax: You can buy digital gold online like physical gold. However, unlike gold bonds, mutual funds and exchange-traded funds (ETFs), digital gold is not regulated by the Securities and Exchange Board of India (Sebi) or the Reserve Bank of India (RBI). Nonetheless, digital gold is taxed like any other gold product in India.

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Physical Gold Tax: Physical gold may come in coins, jewellery, bars, biscuits, etc. It is the most popular choice in India. Investments in physical gold can attract long-term or short-term capital gains tax, depending on the period held at the time of sale. Long-term capital gains are profits from gold held for 36 months or more, at 4 per cent cess and 20.8 per cent tax, with an indexation benefit. Short-term capital gains tax is levied as per income slab. For instance, if a person falls under the 20 per cent slab, the gains (sale price minus purchase cost) will be taxed at 20 per cent.

Paper Gold Tax: These gold products include sovereign gold bonds, gold exchange-traded funds (ETFs), and gold mutual funds. SGB maturity period is eight years and the redemption on maturity is tax-free but if withdrawn before maturity they are taxable as long-term capital gains at 20 per cent with indexation or 10 per cent without indexation benefit. Gold ETFs and mutual funds, if purchased after March 31, 2023, are subject to short term capital gain as per slab rates. If purchased before, the taxation is similar to physical gold.

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Inherited Gold Tax: Inherited gold is exempt from tax under Section 56(2) of the Income-tax Act, 1961. However, income from inherited gold exceeding Rs 50,000 is taxable. Gold jewellery received from a relative at weddings is exempt from tax but if received at some other occassion and from a non-relative is taxable after valuation check. Likewise, if the gifted gold is sold, it will attract capital gains tax. So, tax exemption applies only when receiving it as an inheritance or gift under specific conditions.