Gold investing in India for returning NRIs: Sovereign Gold Bonds, gold ETFs, digital gold, and physical

Gold is unique in Indian financial culture — it's simultaneously a store of value, a cultural necessity (weddings, festivals), and an inflation hedge. Most Indian families hold some gold; most returning NRIs need to decide how to re-engage with gold now that they're resident.

Here's the full picture: the four ways to hold gold in India, their tax treatment, and what makes most sense for a returning NRI rebuilding an Indian portfolio.

The four ways to hold gold in India

1. Sovereign Gold Bonds (SGBs)

SGBs are government securities issued by RBI, denominated in grams of gold. Buying an SGB = economically owning gold, with two benefits physical gold doesn't provide:

Interest: 2.5% per annum on the issue price, paid semi-annually.

Tax-free maturity: if you hold to 8-year maturity (the tenure), redemption proceeds are entirely capital gains tax-free — zero tax on the price appreciation.

How they work:

• Issue price = gold price at time of issue (set by RBI based on preceding week's average)
• You buy, say, 10 grams at ₹7,000/gram = ₹70,000 invested
• You receive ₹3,500/year in interest (2.5% × ₹70,000)
• After 8 years, you receive: current gold price × 10 grams — say gold is ₹12,000/gram → ₹1.2 lakh. Zero capital gains tax on the ₹50,000 appreciation.

The 5-year premature exit: after 5 years, you can exit on the coupon payment dates (semi-annually). Capital gains on premature exit are taxed (LTCG at 12.5% if held >12 months, STCG at slab rate if < 12 months).

Secondary market: SGBs are listed on NSE/BSE. You can buy them on the stock exchange (not just during new issues). Secondary market SGBs often trade at a discount to gold price — buying a 7-year-old SGB at a discount with 1 year to tax-free maturity is a well-known strategy among Indian investors.

Best for: long-term gold holding (8 years) where you want the tax-free maturity benefit.

2. Gold ETFs

Gold ETFs are exchange-traded funds that hold physical gold in a vault and trade on NSE/BSE. Each unit typically represents 1 gram (or 0.01 gram for some ETFs) of gold.

Top gold ETFs in India:

Tax on gold ETF:

• Held < 12 months: STCG at slab rate
• Held ≥ 12 months: LTCG at 12.5% (no indexation) — same as equity ETFs for listed assets

How to buy: through your demat account (Zerodha, Groww) — same as buying a stock. No making charges, no storage cost, price tracks spot gold.

Best for: flexible gold holding with easy entry/exit; medium-term (1–5 year) horizon.

3. Digital Gold

Digital gold (Paytm Gold, PhonePe Gold, Google Pay Gold, MMTC-PAMP) lets you buy gold in rupee amounts (even ₹1) and holds it in a vault on your behalf.

How it works: you pay ₹500 → get 0.07 grams of gold credited → can redeem as coins (minimum 0.5 grams) or cash out.

Advantages: micro-investing convenience; no minimum.

Disadvantages:

• No regulatory oversight from SEBI or RBI (unlike SGBs, ETFs, and physical gold dealers)
• Platform risk — if Paytm or PhonePe winds down the service, redemption complexity
• No tax advantages vs gold ETFs
• Typically 3% GST on purchase (same as physical gold)
• More expensive than ETFs when you factor in the spread

Best for: small, casual gold savings — gifting, festival purchases. Not for meaningful wealth allocation.

4. Physical gold (jewellery, coins, bars)

The most common form of gold holding in Indian families.

Jewellery:

• Making charges: 8–15% for machine-made jewellery, 15–25% for handmade
• GST: 3% on total bill
• Hallmarking: 6-digit BIS HUID mark is mandatory on all gold jewellery sold by registered jewellers since 2022 — always check for HUID

Coins and bars (from banks, MMTC):

• No making charges
• Small premium over spot price (1–3% for certified coins)
• Cannot be sold back to the bank at par — need to sell to jeweller with some discount

Tax on physical gold:

• LTCG (> 24 months for physical gold): 12.5% without indexation
• STCG (≤ 24 months): slab rate

Note: the holding period for LTCG on physical gold is 24 months (not 12 months like listed ETFs/SGBs). So you need to hold for 2 years to qualify for LTCG treatment.

Inherited gold: gold inherited doesn't attract capital gains on inheritance itself. When you eventually sell, the cost is the value on the date of acquisition by the original owner (or gift/inheritance date, depending on circumstances) — consult a CA for specific calculation on inherited family gold.

How much gold to hold?

Financial planners typically suggest 5–10% of total portfolio in gold as a hedge. For returning NRIs rebuilding Indian portfolios, gold serves as:

• Inflation hedge (Indian gold prices have historically risen with inflation + rupee depreciation)
• Portfolio diversification (low correlation with equity)
• Cultural reserve (for family events)

Practical allocation for a returning NRI with ₹2 crore total India portfolio:

• ₹10–20 lakh in SGBs (for long-term, tax-free appreciation)
• ₹5–10 lakh in gold ETF (for flexibility)
• Physical gold: keep only what's needed for family use (jewellery); don't hold bars/coins for investment purposes — SGBs and ETFs are better instruments

Declaring gold in ITR (Schedule FA)

Physical gold, coins, and digital gold held in India are NOT Schedule FA items — they're domestic assets. You report them (if significant) in ITR's asset and liability schedule (applicable for income > ₹50 lakh) but not in Schedule FA.

SGBs and gold ETFs held in Indian demat accounts are also domestic assets — no Schedule FA required.

Schedule FA is only for foreign assets (US brokerage, US bank accounts, 401k, etc.).

Related: Indian portfolio rebuild guide · NPS for returning NRIs · PPF account guide