If You Sell Old Gold to Buy New, You Will Have to Pay 12.5% Capital Gains Tax: Impact of New Rules

Due to the new income tax regulations, if you sell your old gold to purchase new gold today, it will be considered as selling old gold and buying new gold, and you will be liable to pay capital gains tax on it. 

This responsibility arises under the new rules framed through the budget for the financial year 2024-25, which mandates that you must pay capital gains tax on such transactions. According to the long-term capital gains rules, you will have to pay a long-term capital gains tax at a rate of 12.5% on the price of the old gold you sold.

For example, if someone purchased 10 grams of gold for ₹4,300 in 2001 and today sells that same 10 grams of gold for ₹81,000, they would need to pay capital gains tax on ₹76,700 at a rate of 12.5%. 

However, while calculating this, the benefit of indexation will be denied. As a result, selling the old gold will lead to a significant long-term capital gains tax liability.

Capital Gains Tax on Gold Jewelry Sales

If you sell jewelry or gold two years after purchasing it, you will have to pay long-term capital gains tax at a rate of 12.5%. If you buy jewelry, you must also consider the labor costs associated with its creation. Currently, labor charges are imposed based on the weight of the gold, which can also incur a loss.

If you sell the gold in less than two years, short-term capital gains tax will apply. The purchase and sale of digital gold are also subject to short-term and long-term capital gains tax. The short-term capital gains tax is applied based on the individual’s income and the applicable tax slab.

GST and Capital Gains Tax on Gold Investments

When you purchase gold jewelry, you are required to pay a Goods and Services Tax (GST) at a rate of 3% on its price. Additionally, starting April 1, 2025, new capital gains tax regulations will apply to investments in gold mutual funds and gold exchange-traded funds (ETFs). However, for transactions involving gold mutual funds, the old capital gains tax rules will remain in effect until March 31, 2025.

Currently, some debt fund schemes are classified as mutual fund schemes, but over 35% of their investments are allocated to shares of domestic companies. This investment strategy should be considered when planning your gold investment and tax implications.

Short-Term and Long-Term Capital Gains Tax on Gold Mutual Fund Investments

If you sell your investment in a gold mutual fund before completing two years (i.e., within 24 months), it will be subject to short-term capital gains tax (STCG). The STCG rate will be applied based on the individual’s total annual income and the applicable tax slab.

Conversely, if the gold mutual fund investment is sold after 24 months, the profits from that sale will be classified as long-term capital gains (LTCG). In such cases, capital gains tax will be levied at a rate of 12.5%. However, it is important to note that the benefit of indexation, which was previously available, will no longer be applicable for these transactions.

Capital Gains Tax on Gold ETFs

Investments made in Gold Exchange-Traded Funds (ETFs) that are sold within a period of 12 months will be subject to short-term capital gains tax (STCG). If the sale of the listed Gold ETF occurs after the completion of 12 months, it will be subject to long-term capital gains tax (LTCG) at a rate of 12.5%. 

This differentiation in tax rates emphasizes the benefits of holding the investment for a longer duration before selling.