In this year’s Union Budget, India’s capital gains tax rules for gold and other non-financial assets underwent a significant overhaul.
Effective from 23 July 2024, these changes affected both physical and digital gold, as well as alternative gold investments, with implications for jewellers, investors, and customers alike.
Long- and Short-Term Capital Gains on Physical Gold
Under the revised rules, the classification for long-term and short-term capital gains has been shortened. Gold assets held for more than 24 months now fall under long-term capital gains and are taxed at a rate of 12.5% without indexation. For assets held under 24 months, the gains are taxed as short-term and added to the individual’s total income to be taxed at their income tax slab.
This policy shift is especially relevant to jewellers facilitating jewellery exchanges or buy-backs. For instance, if a customer sells an old necklace purchased over two years ago and realises a gain of ₹100,000, they will now face a capital gains tax of ₹12,500. In cases where the customer sells within two years, the gain is added to their income, potentially raising the overall tax liability if they are in a higher tax bracket.
Pratibha Goyal, a chartered accountant with PD Gupta & Company, explained, “If you are exchanging old jewellery for new, it is considered as a sale of the old jewellery, which incurs a 12.5% tax for gains on long-term holdings.” Jewellers will need to address customer questions about the tax implications on exchange values.
No Capital Gains Exemption for Jewellery Upgrades
Unlike property investments, which can be exempt from capital gains tax if proceeds are reinvested into another property under Section 54F of the Income Tax Act, the sale proceeds from gold are not exempt if reinvested into new gold items or jewellery. This may prompt consumers to reassess plans for frequent jewellery upgrades, as each transaction involving older gold assets will trigger capital gains tax on profits.
Jewellers can clarify these tax rules for customers considering exchanges or upgrades, helping them understand the financial impact of such decisions.
GST on New Gold Purchases
Regardless of whether the gold is acquired as new or through an exchange, new gold jewellery is subject to a 3% Goods and Services Tax (GST), including making charges. For example, if a customer purchases new jewellery valued at ₹200,000 with ₹30,000 in making charges, they will pay a total GST of ₹6,900 on the purchase. This separate GST charge may encourage some consumers to consider digital gold options, which bypass making charges, though they still face the 3% GST on the gold’s base value.
Bipin Preet Singh, CEO of MobiKwik, noted, “Digital gold is increasingly popular in cities such as Delhi-NCR, Hyderabad, and Bangalore,” highlighting consumer interest in lower-cost options. This trend may influence jewellers to explore digital gold offerings.
Capital Gains Tax on Digital Gold
Digital gold is subject to the same capital gains rules as physical gold, with the 12.5% tax for long-term holdings over 24 months and slab-rate taxes for short-term holdings. However, digital gold avoids the additional making charges, making it a cost-efficient alternative for customers interested in gold as an investment rather than ornamentation.
As digital platforms continue to grow, jewellers may consider offering digital gold alongside physical options, appealing to cost-conscious customers who still want the security and liquidity associated with gold investments.
Changes to Gold Mutual Funds and Gold ETFs
Effective from April 1, 2025, the capital gains tax for gold mutual funds and exchange-traded funds (ETFs) will also shift, affecting long-term gains. Mutual funds and ETFs held over 24 months will incur the same 12.5% tax without indexation, replacing the previous structure. However, holdings under 24 months remain subject to slab-rate taxes. This change provides greater alignment between physical and digital investment products.
Gold-backed mutual funds or ETFs may appeal to customers interested in gold investment without needing physical storage.
Sovereign Gold Bonds (SGBs): A Tax-Exempt Option for Long-Term Investors
Sovereign Gold Bonds (SGBs), issued by the Reserve Bank of India (RBI), provide tax benefits, including exemption from capital gains tax on redemption after eight years and the option for premature redemption after five years with tax exemption intact. SGBs also offer annual interest payments.
Chartered accountant Dr Suresh Surana commented on the scheme: “Under Section 47 of the Income Tax Act, gains realised on the redemption of Sovereign Gold Bonds are tax-exempt, making them an attractive investment for long-term security.” However, SGBs sold in the secondary market prior to maturity do not qualify for this exemption and are subject to standard capital gains tax rules, creating a strategic choice for customers depending on their timelines.
Industry Implications for Jewellers
The revised tax framework for gold investments could influence customer demand, with jewellers likely seeing increased inquiries about transaction taxes across physical, digital gold, and bonds. Jewellers can support customers by clarifying the financial implications of each option, particularly capital gains considerations.
