Gold and silver surge: Know how ETFs are taxed before you invest in them

With gold and silver at record highs, understand how ETFs are taxed before making your move

As gold and silver prices hit fresh highs, Rs 12,244 per gram for 24-karat gold and Rs 174 per gram of silver this week, according to Good Return, many Indian investors are weighing whether to invest in physical gold, digital gold, or gold ETFs ahead of festive seasons like Diwali and Dhanteras. For gold and silver ETFs in particular, recent tax reforms have changed the rules, making it vital for investors to understand the implications before investing.

 

Tax rules have shifted for ETFs

Under the Finance (No. 2) Act, 2024, gold and silver ETFs are now treated as non-equity capital assets, with a simpler but stricter tax regime. As Shefali Mundra, chartered accountant and tax expert at ClearTax, explains, “If you hold Gold ETFs for more than 12 months, gains qualify as long-term capital gains (LTCG) and are taxed at a flat 12.5 per cent without indexation. If held for 12 months or less, gains are treated as short-term and taxed at your applicable slab rate up to 30 per cent for high-income earners.”

 

 

Previously, long-term gains required a 36-month holding period and benefited from indexation, a system that adjusted gains for inflation, which reduced tax liability. That advantage no longer applies, meaning investors now pay tax on inflationary gains.

 

How short-term and long-term gains differ

Suresh Surana, chartered accountant, breaks it down with an example:

 

Short-term holding (≤12 months): Gains taxed at slab rate. For a Rs 30,000 gain, a 30 per cent tax means Rs 9,000 payable, leaving Rs 21,000. 

Long-term holding (>12 months): Flat 12.5 per cent tax. The same gain attracts Rs 3,750 tax, leaving Rs 26,250, a tax saving of Rs 5,250 simply by extending the holding period.

 

For physical gold, the holding period for LTCG is 24 months instead of 12, and additional costs, such as making charges, reduce returns further.

Why ETFs can be more tax-efficient

Niyati Shah, chartered accountant, vertical head, personal tax at 1 Finance, says, “ETFs offer a transparent, demat-based way to invest without making charges or purity concerns. They match spot prices and make tax planning simpler, with the long-term advantage kicking in after 12 months.”

 

She illustrates. An investor allocating Rs 1.5 lakh to a gold or silver ETF and selling after 18 months with a 25 per cent gain (Rs 37,500) would pay Rs 4,687 tax at 12.5 per cent, keeping Rs 32,813, an effective post-tax return of 21.7 per cent. Exiting earlier cuts returns sharply due to higher slab-rate taxation.

 

 

Tips for small and medium-term investors

For those investing Rs 1-2 lakh over 1-3 years, Mundra suggests:

 

• Hold beyond 12 months to benefit from the concessional LTCG rate. 
• Choose low-expense ETFs to minimise costs. 
• Consider staggered investments to average costs in volatile markets.

 

Shah adds, “Unlike jewellery, ETFs are pure return plays, not sentiment-driven purchases. The key is to hold them right to make them sparkle after tax.”