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NEW DELHI: Finance Minister Nirmala Sitharaman presented the Union Budget 2026 on Sunday, February 1. While gold and silver prices have recently hit historic highs, the government maintained the existing capital gains tax structure for most precious metal investments. However, a significant policy shift has emerged regarding Sovereign Gold Bonds (SGBs).
Investors must now navigate a tighter exemption framework that distinguishes between original subscribers and secondary market buyers. This move aims to streamline tax exemptions while curbing speculative gains. Below is the updated breakdown of how your gold and silver assets will be taxed in the 2026–27 fiscal year.
Taxation Rules for Physical and Digital Gold
Purchasing physical gold, such as jewellery, coins, or bars, still incurs a 3% Goods and Services Tax (GST) on the metal value. Additionally, a 5% GST applies to making charges. For digital gold, the metal tax remains the same, but you save on the making charge GST.
The taxation of profits depends on your holding period:
Short-term Capital Gains (STCG): If you sell within 24 months, gains are added to your total income. They are then taxed at your applicable income tax slab rate.
Long-term Capital Gains (LTCG): If held for more than 24 months, a flat 12.5% tax applies. Notably, the government has removed indexation benefits, meaning you cannot adjust the purchase price for inflation.
The Major Shift in Sovereign Gold Bond (SGB) Taxation
The biggest headline from Budget 2026 is the tightening of SGB tax exemptions. Previously, capital gains at maturity were tax-free for all individual investors. Under the new proposal, this blanket exemption is gone.
Now, capital gains are tax-exempt only if:
You subscribed to the bond during its original issue by the RBI.
You hold the bond continuously until its eight-year maturity.
If you purchase SGBs from the secondary market (stock exchange) or exit before the maturity period, you must pay capital gains tax. If held for over 12 months, these gains are taxed as LTCG at 12.5%. Furthermore, the 2.5% annual interest earned on SGBs remains taxable at your income tax slab rates.
Gold and Silver ETFs and Mutual Funds
Market-linked precious metal investments follow a different timeline. For Gold and Silver ETFs, the holding period for long-term classification is just 12 months. Gains after one year are taxed at 12.5% without indexation.
In contrast, Gold and Silver Mutual Funds (Fund of Funds) require a 24-month holding period to qualify for the 12.5% LTCG rate. If sold earlier, they fall under STCG and are taxed at slab rates. Investors should note that for listed equity and certain mutual funds, an aggregate LTCG exemption of up to ₹1.25 lakh is available annually, which helps small retail investors manage their tax liability.