Which Gold Investment Is Most Tax-Efficient? Physical, ETFs, Bonds Or Inheritance

Gold has always been a favourite investment in India, but the way it is taxed depends on the form in which you hold it. Whether it’s jewellery, ETFs, Sovereign Gold Bonds, or inherited family gold, each option carries its own tax implications. Understanding these differences can help you make smarter choices.

When you buy physical gold, whether jewellery, coins, or bars, you pay 3% GST on the gold itself and an additional 5% GST on making charges for jewellery. On selling, if you dispose of it within 24 months, the gains are treated as short-term capital gains and taxed at your income slab rate. If held for more than two years, the gains qualify as long-term capital gains and are taxed at 12.5% without indexation. This makes physical gold the most tax-heavy option, especially because of the upfront GST and making charges.

Gold ETFs are more tax-efficient at entry since there is no GST involved. However, taxation applies at the time of sale. If you sell within 36 months, the gains are treated as short-term and taxed at your slab rate. If held for 36 months or longer, they are taxed as long-term capital gains at 12.5% without indexation. ETFs thus avoid the initial GST burden but still attract capital gains tax.

Sovereign Gold Bonds (SGBs) stand out as the most tax-friendly option if held till maturity. There is no GST at purchase, and while the 2.5% annual interest is taxable at your slab rate, the capital gains on redemption after the full 8-year tenure are completely tax-free. If sold before maturity, however, the gains are taxed as capital gains depending on the holding period. For long-term investors, SGBs are clearly the most efficient choice.

Finally, inherited gold carries no tax liability at the time of inheritance. Tax applies only when you sell it, and the holding period of the original owner is counted to determine whether the gains are short-term or long-term. This makes inherited gold relatively tax-light, as you don’t pay anything until you decide to sell.