Gold ETF & Gold Fund Taxation — How the Rules Changed and What Applies Now

Few asset categories have had their tax treatment rewritten as many times in as short a period as gold mutual funds and gold ETFs. An investor who bought a gold fund in 2022 and is only now considering selling it needs to track three distinct tax regimes to work out what actually applies — and getting the acquisition date and holding period wrong here produces a genuinely different tax bill, not a marginal one.

The Pre-2023 World — Non-Equity Treatment With Indexation

Before the Finance Act, 2023, gold ETFs and gold funds were taxed as ordinary non-equity assets: long-term capital gains (holding period exceeding 36 months under the pre-amendment threshold) taxed at 20% with indexation — allowing the purchase cost to be inflated using the Cost Inflation Index before computing the taxable gain, meaningfully reducing tax on a long-held position. Short-term gains were added to income and taxed at slab rate.

The 2023-24 and 2024-25 Shock — Caught by Section 50AA

The Finance Act, 2023 introduced Section 50AA, deeming any "specified mutual fund" — originally defined as a fund investing 35% or less of its proceeds in equity shares of domestic companies — to generate only short-term capital gains, taxed entirely at the investor's slab rate, with indexation withdrawn. Because gold ETFs and gold funds hold negligible domestic equity by definition, they were squarely caught by this rule for units acquired on or after 1 April 2023. For FY 2023-24 and FY 2024-25, this meant a gold fund held for any length of time — even a decade — produced only slab-rate, short-term-deemed gains, a genuinely harsh outcome for long-term gold investors that eliminated both the indexation benefit and any long-term concession entirely.

The FY 2025-26 Correction — Gold Funds Restored to Non-Equity Treatment

The Finance (No. 2) Act, 2024 narrowed the Section 50AA definition, effective FY 2025-26 (AY 2026-27) onwards, to cover only funds investing more than 65% in debt and money market instruments (or FoFs investing 65%+ in such a fund). Gold ETFs and gold fund-of-funds don't meet this narrower test — they're not debt instruments — and are consequently outside Section 50AA from FY 2025-26 onwards, reverting to the ordinary non-equity capital gains framework instead.

What Actually Applies to a Gold Fund Sold in FY 2026-27

The current position depends on whether the specific instrument is listed or unlisted, and on the acquisition date:

• Listed instruments (Gold ETFs traded on a stock exchange): long-term if held more than 12 months, taxed at 12.5% without indexation. Short-term (12 months or less) is taxed at slab rate.
• Unlisted instruments (a typical Gold Fund-of-Funds structure, investing in units of an underlying Gold ETF rather than trading on an exchange itself): long-term if held more than 24 months (the current unified non-equity threshold, down from 36 months previously), taxed at 12.5% without indexation. Short-term (24 months or less) is taxed at slab rate.
• Units acquired between 1 April 2023 and 31 March 2025: still fall under the original Section 50AA definition for that acquisition window, regardless of when they're eventually sold — meaning gains on these specific units remain deemed short-term at slab rate, even if sold in FY 2026-27, since the FY 2025-26 narrowing changed the definition prospectively rather than reopening the tax treatment already fixed for units acquired in that earlier window. Confirm this acquisition-date-locked treatment with a tax professional before relying on it, since this is a nuanced transitional point that depends on precisely how the amendment's applicability provisions are read for units bought in that window.

Why Neither Regime Restores the ₹1.25 Lakh Exemption

It's worth being explicit that gold, whether treated as a specified mutual fund under Section 50AA or under the ordinary non-equity framework, never benefits from the ₹1.25 lakh annual exemption — that exemption is specific to Section 112A equity-oriented gains and has no application to gold in any of the tax treatments described above, regardless of holding period.

Physical Gold, Sovereign Gold Bonds, and Gold Funds Are Not Taxed Identically

It's worth flagging that this article addresses gold mutual funds and ETFs specifically — physical gold and jewellery follow the ordinary capital asset rules for movable property (24-month long-term threshold, 12.5% without indexation, but with the additional wealth-tax-era reporting and provenance considerations physical gold carries), while Sovereign Gold Bonds carry their own distinct, generally more favourable tax treatment (including a specific capital gains exemption on redemption at maturity for individual holders) that is materially different from either physical gold or a gold mutual fund. These three gold-linked instruments should not be assumed to share tax treatment simply because they're all "gold."

Tracking Acquisition Dates Is Non-Negotiable for Gold Fund Holders

Given how many distinct regimes have applied to gold fund units depending purely on when they were bought, an investor holding gold fund units acquired across several different years — say, some from 2021, some from 2024, and some in 2026 — may genuinely be looking at three different tax treatments applying to what looks, on the fund statement, like a single homogeneous holding. Lot-level tracking by acquisition date is essential here, not optional.

Getting the Right Treatment Applied to Each Lot

Given the genuine complexity of tracking which Section 50AA regime applies to gold fund units bought at different points since 2023, we help investors reconcile their gold fund and Gold ETF holdings lot by lot against the correct current treatment before filing, rather than applying a single blended assumption across the entire holding.

This article reflects the law as understood at the time of writing for FY 2026-27 (AY 2027-28) and is for general informational purposes only. It does not constitute tax advice specific to any individual's circumstances — please consult a qualified Chartered Accountant to confirm the treatment applicable to units acquired in the FY 2023-24/FY 2024-25 transitional window specifically before filing.