India's gold rules: Limits, taxes, and alternatives for smart investors

There is no direct tax applied at the time of purchasing gold. However, authorities capture the details of the gold purchase through the PAN information provided at the time of the transaction

India has regulations on gold holdings and taxation to manage imports and promote financial transparency for a metal that has deep roots in the country's culture and tradition.
 

Although there is no upper limit for holding physical gold (such as jewellery, coins, bars, etc.), the Income Tax Act specifies certain limits. Beyond these limits, it is imperative to substantiate that the gold has been purchased with legal sources of funds. This condition is specified by the Central Board of Direct Taxes based on gender as well as marital status of the taxpayers.  

 

The Income Tax Department's guidelines outline permissible limits for possessing gold for individuals based on marital status. A married woman may hold up to 500 grams of gold, while the limit for unmarried women is 250 grams. For men, the threshold is 100 grams. Adherence to these prescribed limits generally precludes the need for extensive documentation.

 

“For instance, a married woman owning 450 grams of gold is unlikely to face scrutiny from tax authorities. However, possession exceeding these limits may necessitate providing evidence of the gold's legitimate acquisition to avoid potential penalties or legal complications,” said Rohit Garg, co-founder and chief executive officer at Olyv (an app-based consumer lending platform).

 

It is important to disclose in Income Tax returns gold as part of domestic assets held if the taxpayer has a total income of more than Rs 50 lakh.

 

"One may very well possess any amount of gold, in case they can substantiate the source of purchase through their declared income over the years, or in case of gifts, inheritance, through respective invoices, deeds etc. Therefore, it would be crucial to always maintain documentation and proof of such purchases or receipts if in the form of gifts with details such as occasions, relatives, amount, invoices, inheritance deeds etc, in case you possess gold above these limits to avoid tax scrutiny, or justify your claim in any kind of search or assessment proceedings issues with the Income Tax Department,” said Ritika Nayyar, partner at Singhania & Co.

 

“Unaccountable gold over the above limits could be construed as tax evasion and may call for huge tax (amounting 60 per cent of the value of gold, plus surcharge and cess), additional interest , penalties and in adverse cases may also lead to confiscation depending on the facts and circumstances, she said.

 

Government initiatives

 

Recognising gold's importance while aiming to reduce physical imports, the government has introduced several schemes:

 

Sovereign Gold Bond scheme: Allows investors to buy gold-linked bonds, offering returns tied to gold prices without physical possession.

 

Gold Monetisation scheme: Encourages individuals to deposit idle gold with banks in exchange for interest, aiming to mobilise gold for productive economic use.

 

Gold Exchange Traded Funds (Gold ETFs): These are mutual funds traded on stock exchanges in units. The prices of gold ETFs represent the value of the underlying gold.

 

Taxes on selling physical gold

 

Short-term capital gains: As per the individual’s income slab

 

Long-term Capital Gains: 20 per cent with indexation benefit

 

GST on jewellery exchange: It is nil on the exchange of gold in the same quantity.

 

“In terms of investment purpose, buying and selling physical gold attracts higher taxes as compared to SGBs,” said Naveen Mathur, director - commodities & currencies at Anand Rathi Shares and Stock Brokers.

 

“Overall tax structure on SGBs are still more favourable as compared to investing in physical gold and hence one may choose to invest in SGBs instead of physical gold for investment purpose which is also aligned with long term goals of government to reduce demand for investment in physical gold,” he said.