Capital Gains on Gold ETF and Gold Mutual Funds: Tax Rules for AY 2026-27
TL;DR
- Gold ETF units sold on or after 23 July 2024 and held for more than 12 months are long-term; LTCG is taxed at 12.5 percent without indexation under Section 112.
- Gold ETFs held 12 months or less are short-term, with STCG taxed at slab rate.
- Gold mutual funds (FoFs) follow the same revised 12-month threshold and 12.5 percent rate effective 1 April 2025 onwards.
- Units acquired before 1 April 2023 in gold FoFs retain pre-amendment treatment if sold under earlier transitional rules.
- Both Gold ETFs and gold FoFs are reported in Schedule CG of ITR-2 or ITR-3.
What this means in plain terms
Gold ETFs and gold mutual funds were rebooted in the tax code twice in two years. First, in April 2023, indexation was removed for gold FoFs and they became fully slab-taxed regardless of holding period. Then, the Finance (No. 2) Act 2024 reset things again: from 23 July 2024 onwards, listed Gold ETFs follow the 12-month long-term threshold and a flat 12.5 percent LTCG rate, and from 1 April 2025, gold mutual funds (FoFs) align with the same regime.
The result is that gold ETFs are once again a tax-efficient way to hold gold without the storage hassles of physical metal or the lock-in of Sovereign Gold Bonds. For investors who exited gold ETFs in panic during the 2023-24 tax confusion, returning to them in FY 2025-26 may now make sense both from a tax and convenience standpoint.
Three tax regimes to keep straight
Pre-1 April 2023 acquisitions in gold FoFs
Units of gold FoFs acquired before 1 April 2023 and sold on or after 23 July 2024 fall into the new 12-month threshold and 12.5 percent LTCG bucket. The earlier 36-month threshold no longer applies.
Gold ETFs (listed)
Gold ETFs trading on NSE or BSE are listed securities. The 12-month holding threshold applies for long-term classification, and the LTCG rate is 12.5 percent without indexation under Section 112 for sales on or after 23 July 2024.
Gold FoFs and silver/multi-asset funds with gold exposure
Pure gold FoFs (not invested directly in physical gold but in a gold ETF) align with the new regime from 1 April 2025. STCG is at slab rate for holdings under 12 months; LTCG is at 12.5 percent for holdings over 12 months.
Calculating gain on units
Cost of acquisition
This is the NAV or exchange price at which you purchased, including brokerage, STT, and any GST charged. For SIP investments, each instalment is a separate lot with its own cost and acquisition date — first-in-first-out (FIFO) applies on redemption.
Sale consideration
Net amount credited to your bank after exit load (if any), STT, and brokerage. The Capital Gains Statement from your AMC or broker shows the realised gain unit-by-unit.
Holding period for SIP units
For an SIP started in May 2023 with monthly instalments, each unit purchased before May 2025 is long-term on a sale in June 2026, while units purchased after June 2025 are short-term. The Capital Gains Statement applies FIFO.
Section 112A vs Section 112
Why gold ETFs don't get Section 112A treatment
Section 112A's 10 percent rate (now 12.5 percent post-amendment) on listed equity and equity oriented funds requires that the fund hold at least 65 percent in domestic equity. Gold ETFs hold gold, not equity, so they fall outside Section 112A.
The Rs. 1.25 lakh exemption does not apply
The Rs. 1.25 lakh annual LTCG exemption under Section 112A is exclusive to equity. Gold ETF LTCG is taxed from the first rupee under Section 112.
Comparing gold ETF tax to alternatives
Vs physical gold
Physical gold uses the 24-month threshold; gold ETFs use 12 months. Both attract 12.5 percent LTCG without indexation on long-term sales after 23 July 2024.
Vs Sovereign Gold Bonds
SGB maturity redemption is exempt; gold ETF sale is taxable. SGBs additionally pay 2.5 percent interest; gold ETFs do not.
Vs gold savings funds and digital gold
Digital gold from platforms like Paytm or PhonePe follows physical gold rules (24-month threshold). Gold savings funds that invest in gold ETFs follow the FoF rules.
A real example
Sneha, 31, Rs. 16L CTC, Chennai, started a Rs. 5,000 monthly SIP in HDFC Gold ETF in June 2023. By March 2026, she has invested Rs. 1,70,000 across 34 SIP tranches. She decides to redeem fully in June 2026 when the value is Rs. 2,38,000.
- Long-term lots: SIPs from June 2023 to May 2025 (24 tranches) are held over 12 months. Cost Rs. 1,20,000; assume current value Rs. 1,68,000.
- Short-term lots: SIPs from June 2025 to March 2026 (10 tranches) are held under 12 months. Cost Rs. 50,000; current value Rs. 70,000.
- LTCG: Rs. 1,68,000 minus Rs. 1,20,000 = Rs. 48,000. Tax at 12.5 percent = Rs. 6,000 plus cess.
- STCG: Rs. 70,000 minus Rs. 50,000 = Rs. 20,000. Taxed at Sneha's 20 percent slab = Rs. 4,000 plus cess.
- Total tax: Rs. 10,400 (with 4 percent cess).
If Sneha had redeemed only the long-term lots and held the short-term ones till they crossed 12 months, the STCG of Rs. 4,000 would have shrunk further as LTCG.
What to do this week
- Pull the Capital Gains Statement from your AMC or broker for FY 2025-26 — it itemises each SIP lot.
- Identify any short-term lots; consider deferring redemption till they cross 12 months unless market timing dictates otherwise.
- Reconcile your AIS entries for gold ETF and gold FoF redemptions before filing ITR-2.
- If you exited gold FoFs in 2023-24 panic, re-evaluate whether a fresh allocation suits your goals.
- Run the 6-step assessment at https://myfinancial.in to see your old-vs-new regime delta, unused deductions, and insurance gap in under 10 minutes.
FAQ
Are gold ETF gains eligible for the Section 112A Rs. 1.25 lakh exemption?
No. Section 112A applies only to listed equity shares and equity oriented funds. Gold ETF gains are computed under Section 112 with no separate threshold.
Can I set off losses from gold ETF against equity LTCG?
Long-term capital loss from a gold ETF can be set off against any other long-term capital gain (including equity LTCG). Short-term loss can be set off against either short-term or long-term gain.
What about silver ETFs?
Silver ETFs follow the same listed-security treatment as gold ETFs: 12-month threshold, 12.5 percent LTCG under Section 112 from 23 July 2024.
Does STT impact my cost or sale value?
STT paid on gold ETF transactions is added to cost on purchase and subtracted from sale consideration on redemption — both ways it reduces taxable gain slightly.
Do I need a Demat account?
Gold ETF units must be held in a Demat account. Gold mutual fund (FoF) units can be held without Demat through any AMC's investor portal.
What is the difference between a gold ETF and a gold FoF for tax?
A gold ETF is a listed security and trades on NSE/BSE. A gold FoF is a mutual fund unit that invests in a gold ETF. Post 23 July 2024 amendments, both attract the same LTCG rate, but listed gold ETF has the 12-month threshold by way of being a listed security.
How are gold ETF dividends taxed?
Most gold ETFs use the growth option and do not distribute income. If an AMC declares an IDCW, it is taxed at slab rate as Income from Other Sources under Section 56 and reported in Schedule OS.
Sources
- Income Tax Act 1961, Sections 2(42A), 48, 112 — https://incometax.gov.in
- Finance (No. 2) Act 2024 — https://incometax.gov.in
- SEBI mutual fund categorisation circular — https://sebi.gov.in
- AMFI fund classification — https://amfiindia.com
- NSE listing rules for ETFs — https://nseindia.com
This is general information, not personalised advice. For your situation, consult a Certified Financial Planner.
