Gold is very popular in India. It takes a special place in the hearts of citizens and their investment portfolios. When you trade gold, however, it incurs a lot of taxes. Is it possible to sell gold without paying taxes in India? Let’s find out.

How Gold Is Traded in India

India is the second-largest gold jewellery consumer in the world. In 2021, the country bought 611 tonnes of gold jewellery, following only China with 673 tonnes, according to the ‘Jewellery Demand and Trade’ report released by the World Gold Council on January 19, 2023.

Half of the gold market share is attributed to bridal jewellery. Gold also often serves as collateral for loans in India and as a means of savings amid global economic turmoil.

Investors can buy or sell gold bullion through dealers on several markets. They also sell gold coins, weighing between 1 to 10 gram. Modern gold sales take place both offline and online due to the availability of international trading platforms.

As the vast majority of gold traded in India comes from import, gold sellers deal with numerous taxes. They incur at the state level, local city or region levels, and during transportation. Especially tax-dependent are gold prices in mid-country regions far from the sea. To know the exact gold price at the moment of sale, you can check web resources like Gold Rate Today in Hyderabad.

When you import gold through India’s sea ports, you need to mind the tax-free limits. For instance, the maximum limit for bringing gold to Chennai is Rs 50,000 for males carrying gold and Rs. 100,000 for female tourists or residents entering the port city. If you import more, additional duties incur. Import rules like that greatly impact Gold Rate Today in Chennai as well as other cities in India.

What Taxes Apply to Selling Gold in India

The taxes you should pay while selling gold in India depend on the type of deal. If you’re a gold dealer who sells gold as part of their business activities, you must pay taxes on “Income from business or profession” on every transaction. You will also face the import duty paid as the gold from abroad enters India. Current gold import duties combined total 18%. These include basic customs duty, Agriculture Infrastructure Cess, GST, and AIDC.

However, if you’re an individual who sells their gold belongings such as gold bars, jewelry, coins, ornaments, utensils or any other form of precious metal, such sales will incur tax on capital gains. Here we must distinguish between short-term and long-term capital gains.

Short-term capital gains

Short-term capital gains tax applies to the sale of a capital asset held for less than 36 months. Short-term capital gains are added to one’s gross total income. Such gains are taxed per the individual’s applicable income tax slab rates.

In India, the Income Tax applies to individuals based on a slab system, where different tax rates are assigned to different income ranges. These slab rates vary for different groups of taxpayers. The income tax varies from 5% (for income between ?2,50,000 – ?5,00,000) to 30% (over ?15,00,000). People who earn less than ?2,50,000, are exempt from income tax.

Long-term capital gains

Long-term capital gains are obtained on the sale of a capital asset like gold, owned for more than 36 months. Individuals are liable to pay 20% tax and a 4% cess on such profits, with an indexation advantage. That means that gains are calculated after adjusting the purchase price of gold for inflation based on the CII index.

Note: Gains from the sale of gold ETFs or gold MFs, as well as other forms of digital gold, are taxed similarly to that of physical gold, with short-term or long-term capital gains tax applicable.

Gold received as a gift or inheritance from family members or relatives is not considered capital gains and is eligible for an income tax exemption.

Tax Exemptions Applicable When Selling Gold in India

To sell gold without paying extra taxes in India, an individual can leverage the following tax exemptions.

Section 54F waives the tax when buying residential property

Section 54F of the Income Tax Act allows to avoid long-term capital gains tax on gold sales if the sale’s proceeds are used to acquire a residential property. A person can reinvest the income from selling gold to buy a ready-made house within one year before the sale or two years after the sale or to construct a new house within three years of the sale.

If capital gains cannot be reinvested to buy residential property within the required time frame, but are intended for that purpose, individuals can deposit the gains into a Capital Gains Account at a public sector bank. This will help them to save on taxes until the sale proceeds are used to purchase or construct a new residential property.

Selling mature sovereign gold bonds doesn’t incur capital gains

Investing in gold may take different forms. Sovereign gold bonds are one of them. Sovereign gold bonds (SGBs) are issued by RBI on behalf of the Government of India, making it both a secure and profitable investment option. SGBs have an annual interest of 2.5%, without any capital gains tax upon maturity. The maturity period for an SGB is eight years.

While profit from SGB sales is fully exempt from tax after its maturity term, early exit from the scheme does incur regular capital gains tax. It can be both short-term and long-term capital gains. Besides, interest earned on these bonds is taxable per the applicable Income Tax provisions.

Note: NRIs are not allowed to invest in Sovereign Gold Bonds, according to the Foreign Exchange Management Act (FEMA), 1999. If NRIs have already invested in SGB before achieving the NRI status, they can either hold the bond until its maturity or demand premature redemption.

Get around taxation through gold loans

Gold loans are a popular way to sell gold without paying taxes in India. Technically, you don’t sell gold but lend it. In case people are short of cash, they can obtain funds by pledging gold bullion, jewellery, or coins as collateral. Most gold loans (65%) are provided by moneylenders and pawnbrokers, while the other 35% are given by banks and other formal lenders (NBFCs).

Gold loans are often used in India. In fact, about one-fifth of all gold in India is pledged. According to the Reserve Bank of India (RBI), the disbursement of gold loans has risen twofold, from Rs. 46,971 crores in September 2020 to Rs. 80,617 crores in September 2022. The majority of the gold loan portfolio comes from agriculture gold loans, as the RBI had earlier mandated banks to lend to priority sectors like agriculture.

Summary

Taxes are an inevitable part of transactions with capital assets such as gold. Yet, people who wonder how to sell gold without paying taxes in India do have a few options. They can avoid capital gains tax when redirecting the profit to buying a house, using a gold loan or choosing sovereign gold bonds as an investment. Moreover, if the sales proceeds cannot be immediately spent on residential property, a person can use a capital gains account to save on taxes.