Gold ETF Taxation in India – Is Investment in Gold ETF Tax-Free?

What is Gold ETF?

We have heard a lot about gold products and Gold ETF is one among them. So, in this article I will take you through Gold ETF Taxation in India and how does it work. Let’s get into it:

Gold ETFs are exchange-traded funds just like any other scheme of mutual fund houses in which AMC parks the investment amount in assets like golds or bullions. It is in line with the domestic physical gold prices. Gold ETFs are backed by 99.5% pure physical bars. Unlike any other funds, gold ETFs are listed on India Stock Exchanges as NSE/BSE. However, the same can be bought and sold at the same price PAN India which is not the case with physical gold. As gold prices vary from city to city.

Alternatively, we can say gold ETFs are the passive investment instrument that is directly linked to gold prices but safe the investors from the hassles of holding physical gold.
In other words, Gold ETFs refer to buying gold in Demat form. When you want to redeem ETFs instead of physical gold, the price equivalent to gold price will be credited to your account. Moreover, AMCs do permit redemption of Gold ETF Units in the form of physical gold in ‘Creation Unit’ size if one holds the gold ETFs equivalent to 1kgs and multiples thereof.

Also Read Best Gold ETF in India 2021 | How to Choose Best Gold ETF?

How Gold ETFs Works?


As we have understood now Gold ETFs, let’s check out how it works:

Gold ETFs are open-ended mutual funds backed by physical gold.
For example, when you invest in Gold ETFs, in the backend AMCs will buy physical gold equivalent to the investment amount and assures the purity of gold to be 99.5%.

Likewise, Gold ETFs can be purchased on NSE/BSE platform via a broker using the Demat account. Certainly, it’s a mutual fund scheme so it comes with an expense ratio that is quite marginal in gold ETFs. Therefore, rigorous trading and control by stock exchanges ensure that the cost of gold and ETFs remains the same.

Also Read Sovereign Gold Bond: Best Returns on Gold Investment

Gold ETF Taxation in India

Gold ETFs are considered perfect tax-efficient instruments as returns are only subject to long-term capital gain tax,
but do not attract any additional burden like wealth tax, VAT, sales tax.

Gold ETFs which are older than 36 months get levied with LTCG tax as they are held in stocks form. Similar to physical gold, ETFs are taxed at 20 percent plus 4 percent cess for long-term capital gains.
As per income tax slab if sold before 36 months or else 20.8% LTCG Tax if sell after 3years with indexation benefit.

Also Read Gold investment comparison: with all form | Returns comparison 2021

Frequently Asked Questions

Is investment in gold ETF is beneficial?

From a short-term investment point of view, it’s best to invest in Gold ETFs as there is no lock-in period nor any entry or exit load. So try to buy gold ETFs in dips and sell during rallies one can easily book good profits.

Is Gold ETF tax efficient?

Yes, it is. As an investor, one does not pay any wealth, sales, or VAT on the purchase of Gold ETFs only if hold for more than 3 years than getting LTCG taxed.

Do you pay taxes on ETFs?

Yes, LTCG is applicable at 20.8% if holds more than 36 months or else gains will be taxed as per the income tax slab.

Also Read New GST on Gold Biscuits, Coins, Ornaments & Making Charges in 2021

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