On ₹5 lakh held for five years, jewellery costs the most: its making charges and 3% GST never come back. A gold ETF or gold mutual fund takes a small yearly expense ratio, while an existing sovereign gold bond (SGB) bought on the exchange has no expense ratio and pays 2.5% on its original issue price, about 1% on today's price, but since April 2026 its gain at maturity is taxed like the others'.
What does each form of gold cost to buy and hold?
Jewellery pays GST at 3% of the whole bill, making charges included. Making charges vary widely by jeweller and design, with no official benchmark. Coins and bars pay the same GST, little or no making charge, and any locker rent. A jeweller buying either back pays the gold's value at best.
A gold ETF holds physical gold, trades on the exchange like a share and needs a demat account; each fund house sets its yearly expense ratio, which SEBI caps at 0.90% before levies from April 2026. A gold mutual fund, usually a fund of funds buying gold ETF units, needs no demat; the same 0.90% cap covers its charge and the underlying ETF's together, and a direct plan charges less.
An SGB is a government bond priced in grams of gold, running eight years. No new SGB has been issued since February 2024, so an existing bond can only be bought on the exchange.
What is Hari's ₹5,00,000 worth after five years?
Hari, on a ₹35 lakh gross salary (new regime, 30% slab, 31.2% with cess), wants ₹5,00,000, 10% of his ₹50,00,000 portfolio, in gold. Assumptions made in October 2026, not forecasts: gold rises 8% a year (₹1 becomes about ₹1.47 in five years), making charges are 12% of the gold's value, coins carry none, and the ETF costs 0.5% a year.
On jewellery, ₹5,00,000 buys ₹4,33,426 of gold; ₹52,011 goes on making and ₹14,563 on GST. At 7% or 17% making, it would buy ₹4,53,679 or ₹4,14,903. Coins lose only the GST, leaving ₹4,85,437 of gold. The bond, from the December 2023 issue priced at ₹6,199 a gram, costs him ₹14,766 a gram, the India Bullion and Jewellers Association (IBJA) morning price for 999 gold on 13 October 2026.
| Form | Value after 5 years | Tax on the gain | Left after tax |
|---|---|---|---|
| Jewellery | ₹6,36,845 | ₹17,790 | ₹6,19,055 |
| Coins or bars | ₹7,13,266 | ₹27,725 | ₹6,85,541 |
| Gold ETF | ₹7,16,480 | ₹28,142 | ₹6,88,338 |
| SGB bought on the exchange | ₹7,34,664 plus interest | ₹30,506 | ₹7,22,208 with interest |
Each gain is long-term, taxed at 13% with cess on the sale price less everything paid: on jewellery, 13% of a ₹1,36,845 gain is ₹17,790. The bond's 2.5% is paid on ₹6,199, not ₹14,766, so his ₹5,00,000 earns ₹5,248 a year, ₹3,610 after tax; ₹7,04,158 plus five years of that, about ₹18,050, gives ₹7,22,208.
The bond's lead assumes Hari pays exactly the gold's value; series trade above or below it, and a 3% premium, ₹15,000, would cancel most of the interest. It also counts five years, though the bond matures in December 2031, two months later, with one more payment of about ₹1,800 after tax.
How does the tax change with salary and holding period?
Gold sold early is taxed at your slab: a gold ETF or an SGB sold on the exchange within 12 months, and coins, jewellery or a gold fund of funds within 24 months. After that, gains pay 12.5% without indexation, the rule since 23 July 2024.
If gold rises 8% in Hari's first year, his ETF is worth about ₹5,37,300, a ₹37,300 gain, taxed like this:
| Gross salary (new regime) | ETF sold within 12 months | ETF sold after 12 months | Bond interest after tax, a year |
|---|---|---|---|
| ₹15 lakh (15.6%) | ₹5,819 | ₹4,849 | ₹4,429 |
| ₹22 lakh (26%) | ₹9,698 | ₹4,849 | ₹3,883 |
| ₹35 lakh (31.2%) | ₹11,638 | ₹4,849 | ₹3,610 |
Waiting out the 12 or 24 months is worth most in the 30% slab. Every fund type's rule is in how mutual fund gains are taxed.
Why does an SGB bought on the exchange now pay tax at maturity?
The Finance Act, 2026 amended section 70(1)(x) of the Income-tax Act, 2025 (section 47(viic) of the 1961 Act): from 1 April 2026 the gain on redemption is exempt only for a bond bought at its original issue and held to maturity. Hari, buying in 2026, pays 13% with cess on the gain at maturity; an original subscriber pays nothing on it.
The RBI redeems early only after the fifth year, on an interest date, at the average closing price of 999 gold over the previous three business days. Many series trade thinly.
Which form suits which buyer?
A gold ETF suits a demat holder who may sell early: it sells within a day, at a known yearly cost. A gold fund of funds suits a monthly SIP without demat, with a 24-month wait for the lower rate. Coins end ₹2,797 behind the ETF before any locker rent. An existing SGB suits someone who can hold to maturity, buy near the gold's value and live with a thin market. Jewellery is bought to wear: ₹66,574 of Hari's bill, about 13%, is not gold.
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Frequently asked questions
This is general information for salaried individuals in India, not personalised financial advice.
