Budget 2026 Proposal Narrows Sovereign Gold Bond Exemption; Gold Taxed Three Ways

Gold held by Indian buyers is taxed in three different ways: as physical jewellery, coins and bars, as units of a gold exchange-traded fund (ETF), or as Sovereign Gold Bonds (SGBs) redeemed through the Reserve Bank of India (RBI). The holding period, the tax rate and the treatment of a sale or redemption differ across the three.

Physical and digital gold buyers also pay GST at purchase, which is separate from capital gains tax. The sections below set out the holding periods and rates for each route, the GST that applies at purchase, and the change to the SGB exemption proposed in Budget 2026.

Physical Gold: The 24-Month Line

Physical gold is taxed when it is sold, and the holding period decides the rate. Jewellery, coins and bars held for 24 months or less produce short-term gains, which are added to income and taxed at the buyer's slab rate. Gains on gold held for longer than 24 months are long-term and taxed at 12.5% without indexation, according to Kotak Neo's summary of current rules.

Two charges apply at purchase rather than on sale. GST of 3% is charged on the value of the gold, and jewellery making charges attract 5% GST. Kotak Neo says the GST paid at purchase stays embedded and cannot be adjusted against capital gains later.

Digital gold carries the same 3% GST at purchase but no GST on making charges. Kotak Neo says its capital gains follow nearly the same structure as physical gold.

Kotak Neo says India has no inheritance tax, but capital gains tax applies when inherited bullion is sold. The buyer uses the original owner's purchase cost, and the holding period includes the time the previous owner held it, which can help the sale qualify as long-term.

Gifts from specified relatives are tax-free. Gifts from non-relatives are taxable in the recipient's hands if their value exceeds ₹50,000.

Gold ETFs and Gold Mutual Funds

Units of gold ETFs listed on an exchange are taxed on a 12-month clock. Units held for 12 months or less produce short-term gains taxed at the investor's slab rate. Units held for more than 12 months produce long-term gains taxed at 12.5% without indexation, with a 4% health and education cess on both rates, according to IIFL. IIFL adds that a surcharge can apply for high-income taxpayers.

IIFL attributes the current rules to the Finance (No. 2) Act, 2024. Before that change, the long-term holding period was 36 months and the long-term rate was 20% with indexation.

IIFL works through two examples. A gain of ₹8,000 made after seven months is taxed at a 20% slab, giving ₹1,600, or ₹1,664 with cess. A gain of ₹30,000 made after 13 months is taxed at 12.5%, giving ₹3,750, or ₹3,900 with cess. IIFL puts the tax on the same ₹30,000 gain at a 30% slab, if it were short-term, at ₹9,360.

IIFL also describes a transition rule for units acquired from April 2023, under which certain non-equity fund units, gold ETFs among them for a time, were taxed at slab rates regardless of holding period. An amendment narrowed the rule to debt-oriented funds, so redemptions from 1 April 2025 follow the 12-month regime, and the year of sale matters for transactions in the 2023–25 window.

Gold and silver mutual funds follow a 24-month clock. Kotak Neo says they are taxed at slab rates if held for two years or less, and at 12.5% beyond that.

Sovereign Gold Bonds: Interest and Market Sales

Sovereign Gold Bonds pay 2.5% a year in interest, which Kotak Neo says is taxed at slab rates. NISM, the National Institute of Securities Markets, says the bonds run for eight years from issue, with early redemption windows opening from the end of the fifth year at six-month intervals.

NISM describes two ways of buying. Primary issuance means buying directly from the RBI when it issues the bond, applied for in a way similar to an IPO. The secondary market means buying through a broker on the exchanges.

A sale in the market follows the ETF clock. Gains on bonds held for 12 months or less are taxed at slab rates, and gains on bonds held for longer are taxed at 12.5% without indexation, Kotak Neo says. NISM adds that capital losses from other assets can be set off against gains from an SGB sale or redemption.

IIFL notes that physical gold can be pledged for a gold loan, while ETF units and SGBs sit outside RBI's gold-collateral rules.

The Redemption Exemption and the 2026 Proposal

Before Budget 2026, NISM says a gain on redemption of an SGB was not taxed, regardless of whether the bond was bought at issue or in the market. The Budget proposal would change this. Taxguru quotes the amendment as covering bonds held by an individual from the date of original issue until maturity, under Section 70(1)(x) of the Income-tax Act, 2025, which replaces Section 47(viic) of the Income Tax Act, 1961. Taxguru says the old provision exempted any individual's redemption, while the amended one makes the exemption conditional.

Taxmann, which quotes the Budget memorandum, says the exemption applies only where the bond is subscribed at original issue and held continuously until redemption on maturity, across all SGB issuances. Investors who bought on the stock exchange would lose the exemption, as would an original allottee who sold and later bought again. The exemption covers individuals only.

Taxmann says the amendment takes effect from 1 April 2026 and applies to tax year 2026-27, and Outlook Money gives the same start date. Outlook Money says redemptions made before 31 March 2026 remain exempt. Outlook Money says gains on redemptions after that date are taxed at a flat 12.5% if the bond is held for more than 12 months, and at slab rates if sold within one year.

The change is described as a proposal, and whether it has been enacted in final form is not settled here.

Gold ETF units and physical gold cross the long-term line at different points, after 12 months and after 24 months.

Premature Redemption and the Disputed Reading

Early redemption is disputed. NISM reports that the Income Tax Department's FAQ answers no on premature redemption, saying the exemption applies only to holding until maturity. The same FAQ says secondary-market bonds are not eligible, citing a 2022 office memorandum of the Department of Economic Affairs that NISM's author could not find online.

NISM's author argues that an internal memo cannot override the Act. The author reads the Act as making no distinction between premature and maturity redemption, or between primary and secondary purchases, and so reads the law to keep premature redemptions before 1 April 2026 exempt, even for buyers in the market. Taxguru notes that RBI sets the redemption dates, so investors cannot force an early exit unless the official schedule aligns with this window.

NISM, citing data from NSDL, lists four SGB series with premature request windows open before 1 April 2026: 2020-21 Series VI (5 to 25 February 2026), 2020-21 Series XII (6 to 27 February 2026), 2019-20 Series X (7 February to 2 March 2026) and 2019-20 Series IV (13 February to 7 March 2026). The author says only these four had windows open before that date.

What Buyers Should Check Before Buying

Several points matter most for buyers. The 3% GST on gold and the 5% GST on making charges are paid at purchase and are not offset against capital gains. Gold ETF units and physical gold cross the long-term line at different points, after 12 months and after 24 months.

The SGB exemption depends on how and when the bond was bought. A bond bought directly from the RBI at original issue and held to maturity is treated differently from one bought on the exchange, and under the proposal described above, the rule applies from the 2026-27 tax year if the change is enacted as drafted.

For ETFs, IIFL says gains are reported under Schedule CG in the year of sale, under the 'others' heads, and that a broker's capital gains statement provides the figures.