What Indexation Was and Why It Mattered
Before the July 2024 budget, long-term capital gains on physical gold were taxed at 20% with the benefit of indexation — an adjustment that increased your cost of acquisition by the Cost Inflation Index (CII) factor published by the Income Tax Department. This meant that gold held for many years had its purchase price inflated in line with official inflation, significantly reducing the taxable gain.
For example: Gold purchased in 2010 for ₹1 lakh, sold in 2024 for ₹6 lakh. Old system with indexation: adjusted cost ≈ ₹3.1 lakh, gain = ₹2.9 lakh, tax at 20% = ₹58,000. New system without indexation: gain = ₹5 lakh, tax at 12.5% = ₹62,500. The new system produces a higher tax bill for gold held for many years — despite the lower headline rate.
The Post-July 2024 Rule for Physical Gold
Under the revised rules effective from the 2024 Union Budget, Long-Term Capital Gains on physical gold are taxed at a flat 12.5% without any indexation adjustment. The gain is calculated as: sale price minus original cost of acquisition (no inflation adjustment). This applies to all physical gold sold after 23 July 2024, regardless of when it was purchased.
For gold purchased recently (within the last 3–4 years), the difference between the old and new system is small — inflation adjustment over a short period is modest. For gold held for 10–20 years, the tax impact is substantially higher under the new system, even though the rate is lower.
For long-held gold: If you purchased gold before 2015 and are planning to sell, model your actual tax liability under the new 12.5% rule without indexation. Compare this against your financial need to sell now vs continuing to hold. In some cases, deferring the sale and using the gold as collateral for a gold loan may offer better net economics in the short term.
Calculating Your Tax Under the New Rules
The calculation is now simpler. Step 1: Find your original purchase price from the invoice. Step 2: Determine the sale proceeds. Step 3: Subtract step 1 from step 2 to get the gain. Step 4: If held more than 24 months, multiply the gain by 12.5% to get your tax liability. Step 5: Report this in Schedule CG of your ITR.
If you have no purchase invoice — common for old inherited jewellery in Madurai — the original cost may need to be estimated. For jewellery received before 2001, the Income Tax Department allows using the fair market value as of 1 April 2001 as the deemed cost of acquisition, which provides some inflation relief for very old holdings.
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