What you will learn: how the main ways of holding gold in India differ in what they cost to buy, hold and sell, how gains are taxed for tax year 2026–27, where existing Sovereign Gold Bonds fit, and what gold can and cannot do for a household.
Kavita and Suresh Nair (an illustrative profile), both 40, live in Kochi with their daughter, who is 14. They have set aside ₹5 lakh "for gold", partly with her wedding in mind and partly because gold feels safe. Kavita's mother says buy jewellery now, while prices are where they are. A colleague of Suresh holds a gold ETF. A cousin still has Sovereign Gold Bonds and says they were the best of the lot. Their real question: if we want gold, which form actually leaves us with the most gold value, and what will tax take?
What gold does, and what it does not
Gold is a price exposure. It pays no rent, interest or profits while you hold it, so your entire return is the change in price minus what it cost to get in, hold and get out. In India the rupee price of gold moves with two things: the international price, quoted in US dollars, and the rupee–dollar exchange rate. If the dollar price is flat for a year and the rupee weakens 5% against the dollar, the rupee price rises about 5%.
That is why gold is often held as a diversifier: it has at times risen when shares fell or when the rupee weakened. But it has also gone through long stretches of flat or falling prices, and it can fall at the same time as other assets. It is a portfolio ingredient with a variable relationship to everything else, not insurance with a fixed payout. How much of a portfolio it should be is a whole-portfolio question, covered in risk, diversification and asset allocation; the general nature of gold as an asset class is in asset classes. This lesson is about the form you hold it in, because the form decides how much of the gold price actually reaches you.
The forms of gold side by side
| Form | What you own | Cost to get in | Cost while holding | Cost to get out | Gain becomes long-term after |
|---|---|---|---|---|---|
| Jewellery | Physical gold plus craftsmanship | Making charges (often a high percentage of metal value), GST on the whole bill | Safe storage or locker, insurance | Making charges and GST are not paid back; buyers deduct for purity and wastage | 24 months |
| Coins and bars | Physical gold, little craftsmanship | Premium over the gold price, GST | Safe storage, insurance | Smaller deduction than jewellery, but buyers may test purity and pay less than the selling price | 24 months |
| Gold ETF | Units of a mutual fund scheme that holds physical gold, listed on a stock exchange | Brokerage and the bid-ask spread; no GST on units | Annual expense ratio, deducted inside the NAV | Spread and brokerage on the sale | 12 months (listed) |
| Gold fund (fund of funds) | Units of a mutual fund that invests in gold ETFs; bought from the fund house, no demat needed | Usually nil | Its own expenses plus those of the ETF it holds | Exit load, if any | 24 months (unlisted units) |
| Existing Sovereign Gold Bonds | A Government of India bond linked to the gold price, paying 2.5% a year on the issue price | No new issues since February 2024; buying means an exchange purchase from another holder | None; interest is paid to you | Thin exchange trading; early redemption with the RBI only on set dates after five years | 12 months if sold on an exchange; redemption rules below |
| "Digital gold" on apps | A contract with a private seller who says it stores gold for you | Seller's spread, GST | Storage fees after a period, on some platforms | Seller's buy-back price | 24 months |
The last row needs a warning. "Digital gold" sold on apps is not a product regulated by SEBI, and in November 2025 SEBI cautioned investors that such products fall outside its oversight, so the investor protection that comes with registered intermediaries does not apply. Gold ETFs and gold funds are mutual fund schemes and come under SEBI's mutual fund rules.
Worked example: what a jewellery bill buys
Assumptions (illustrative, not today's prices): 24-carat gold at ₹12,500 a gram, so 22-carat at ₹11,458 a gram (22/24 of the 24-carat price); a 40-gram 22-carat necklace; making charges of 12% of metal value; GST of 3% charged on the whole bill, metal plus making; same-day resale to a jeweller at metal value less a 3% deduction.
- Metal value: 40 g × ₹11,458.33 = ₹4,58,333.
- Making charges: 12% × ₹4,58,333 = ₹55,000.
- GST: 3% × (₹4,58,333 + ₹55,000) = ₹15,400.
- Bill: ₹5,28,733.
- Resale the same day: ₹4,58,333 × 97% = ₹4,44,583, which is ₹84,150 or 15.9% less than the bill.
- Price rise needed just to get back to the bill: about 18.9%.
Nothing here is a hidden fee. Craftsmanship has real value if the family will wear the piece, and a necklace may be bought partly for that reason. The point is to know that the investment part of the purchase is the metal, and the rest is consumption. If the purpose is pure gold exposure, compare forms on what they keep.
Worked example: ₹5 lakh for eight years, four ways
Assumptions (illustrative, stated so you can change them): ₹5 lakh invested once, held eight years. Base case: the gold price rises 7% a year. Adverse case: the gold price is flat. Jewellery as above (12% making, 3% GST, 3% resale deduction). Coins: 3% premium over the gold price plus 3% GST, sold at a 1% deduction. Gold ETF: 0.5% a year expense ratio and a 0.1% spread on each trade. Gold fund: 0.7% a year total expenses including the underlying ETF, no exit load. Locker rent and insurance for physical gold are left out, which flatters the physical forms. Long-term gains are taxed at 12.5% plus 4% cess, with no surcharge.
| Form | Base case (gold +7% a year) | Post-tax annual return | Adverse case (gold flat) |
|---|---|---|---|
| Jewellery | ₹6,93,458 | 4.2% | ₹4,20,423 |
| Coins and bars | ₹7,62,461 | 5.4% | ₹4,66,585 |
| Gold ETF | ₹7,81,597 | 5.7% | ₹4,79,386 |
| Gold fund (fund of funds) | ₹7,71,567 | 5.6% | ₹4,72,676 |
Two lessons sit in this table. First, the gold price alone would have turned ₹5 lakh into ₹8,59,093; every form keeps less, and the gap is costs and tax. Second, costs matter most when prices disappoint: in the flat case, jewellery loses about ₹80,000 while the ETF loses about ₹21,000. The ETF and fund numbers depend on the expense ratio you actually pay, which you can check in the scheme documents. How passive funds' costs and tracking work in detail is in tracking difference and total cost, and buying ETFs well on the exchange is in ETF liquidity and iNAV.
Tax on gold gains in tax year 2026–27
Gold is a capital asset, so profit on sale is a capital gain. Under the Income-tax Act, 2025, which applies from 1 April 2026:
- Holding period. Physical gold and unlisted fund units become long-term after 24 months. A listed security, which includes gold ETF units bought and sold on an exchange, becomes long-term after 12 months.
- Long-term gains on gold are taxed at 12.5% plus cess, without indexation. The ₹1.25 lakh yearly exemption applies only to listed equity shares, equity-oriented fund units and business trust units, not to gold.
- Short-term gains on gold, in any of these forms, are added to your income and taxed at your slab rate.
- Your cost is what you paid for the gold, and for jewellery that is normally the full bill. Keep the invoice; without it, proving the cost is difficult.
- Exchanging old jewellery for new is a sale of the old piece followed by a purchase. If the old jewellery has gained in value, that sale can create a capital gain even though no cash reached you.
Gifts and inherited jewellery carry the previous owner's cost and holding period, which is why old bills and family records matter. The full method for working out a gain is in capital gains across assets, and fund-of-funds classification is in mutual fund taxation.
Sovereign Gold Bonds: existing holdings only
The RBI's list of Sovereign Gold Bond tranches ends with 2023–24 Series IV, priced in February 2024, so there is no new issue to plan around. What remains are bonds people already hold and bonds traded on exchanges. Each bond has an eight-year term, pays 2.5% a year on the issue price in half-yearly instalments (taxable at your slab), and can be redeemed early with the RBI only on scheduled dates after five years from issue. At redemption you receive the gold price of the time, in rupees.
The tax on redemption changed from 1 April 2026. As amended by the Finance Act 2026, the exemption on redemption applies only to an individual who subscribed at the original issue and held the bond continuously until it matures. A bond bought on an exchange does not get it, and the Income Tax Department's published guidance indicates that early redemption with the RBI, even after five years, does not get it either. If you are considering an early redemption window, check the current position first.
Illustration per gram-unit (assumed figures): issue price ₹6,200; Suresh's cousin subscribed at issue, holds to maturity and receives ₹15,000, so his ₹8,800 gain is exempt. Someone who bought the same bond on an exchange for ₹11,800, held it more than 12 months and receives ₹15,000 at maturity has a ₹3,200 long-term gain and pays about ₹416 in tax. Both receive interest of ₹155 a year on each unit (2.5% of ₹6,200), taxable at slab; at a 30% slab plus cess, about ₹107 is left. Bond mechanics are in types of bonds.
Try this: a gold check for your household
- List every piece of gold you hold, in grams and form: jewellery, coins, ETF units, fund units, SGBs. Add up the grams.
- Separate what you will wear or pass on from what you hold as investment. Only the second is part of your asset mix.
- For new jewellery, ask for a bill showing weight, purity, hallmark details, making charges and GST separately.
- For ETFs and gold funds, note the total expense ratio and, for funds, any exit load.
- For SGBs, note whether you subscribed at issue or bought on an exchange, the maturity date and the early-redemption windows.
- Keep every invoice, contract note and statement with the date: they are your cost proof.
Common questions
Is a gold ETF the same as owning gold?
Economically close: the scheme holds physical gold, and the NAV follows the gold price less expenses. Legally you own mutual fund units, not metal, and you need a demat and trading account. A gold fund of funds gives similar exposure without a demat account, at a slightly higher total cost in most cases.
Will I pay tax if I exchange my mother's old jewellery for new pieces?
Possibly. An exchange is treated as a sale of the old jewellery. The cost is your mother's original cost, and the holding period includes hers. If the value has risen, there can be a long-term gain even though you received no cash.
Should I still try to buy Sovereign Gold Bonds?
There are no new issues; you can only buy existing bonds from other investors on an exchange, where trading is thin and the redemption exemption no longer applies to you. Compare the interest you would receive with the price, liquidity and tax you face, as in the example above.
How much gold should a family hold?
There is no single right percentage. It depends on the rest of your portfolio, your goals and how much jewellery you already own. The method for setting an asset mix is in risk, diversification and asset allocation.
Where to go next
- Property as an investment: the same cost-and-tax arithmetic applied to a rented flat.
- Real assets vs a liquid portfolio: one household weighs gold, property, REITs and funds together.
- Inflation and real returns: turning a post-tax return into a real one.
- Further reading: digital gold and SEBI's warning; alternatives to Sovereign Gold Bonds; gold vs silver.