An NRI gets several options for investing in gold in India. It includes gold exchange-traded funds (ETFs) and gold mutual funds. They can also invest in physical gold items like jewelry, bars, or coins. However, they are prohibited from investing in Sovereign Gold Bonds (SGBs).
They can make the investments through NRE/NRO accounts. Additionally, NRIs can bring physical gold to India within the specified limit, subject to customs duty if an individual has stayed abroad for over a year. Then, the duty-free limit is 40 grams for women and 20 grams for men.
Capital gains tax is applicable on NRI gold investments based on the holding period. Investing in gold offers a stable wealth management strategy for NRIs. In this guide, we will walk you through the key considerations for NRIs looking to invest in the Indian gold market.
Key Takeaways
- An NRI can invest in gold in India through NRE/NRO accounts. However, they are not allowed to make investments in SGBs, while they may continue to hold the old ones.
- They can invest in physical gold, gold exchange-traded funds, and gold mutual funds.
- Non-resident Indians can bring physical gold to India from abroad within the specified limit, subject to customs duty. The duty-free limit is 40 grams for women and 20 grams for men.
- You need to pay capital gains tax on NRI gold investment depending on the holding period, which can be either short-term or long-term.
Why Should NRIs Invest in Gold?
NRIs should invest in gold mainly for portfolio diversification, a hedge against inflation, global liquidity, etc. Whether the stock market fluctuates or inflation rises, gold tends to hold its value or even increase. Here are some of the key reasons why an NRI prefers to invest in gold in India:
- Hedge Against Inflation: The price of gold generally rises when the cost of living increases, which helps in protecting your money's value.
- Portfolio Diversification: You can balance risk by adding gold to your investment portfolio, specifically when stocks or real estate are volatile.
- Global Liquidity: Gold can be sold easily or exchanged anywhere around the globe.
- Cultural and Emotional Value: A lot of NRIs invest in gold with the motive to stay connected to their Indian roots and traditions.
- Modern Investment Option: Digital options like Gold Exchange-Traded funds (ETFs), gold mutual funds, and digital gold avoid the traditional challenges of owning physical gold, such as storage, security concerns, purity verification, etc.
What are the Benefits of Investing in Gold as an NRI in India?
Investing in gold offers several benefits to the NRI, including:
- Haven during market turmoil.
- Traditional values in Indian culture
- Global acceptance and liquidity.
- Protection against market volatility.
- Balance during economic uncertainty.
- Portable wealth and an easy gifting option.
What are the Different Ways NRIs Can Invest in Gold?
There are many ways in which an NRI can invest in gold in India, such as physical gold, gold ETFs, digital gold, and gold mutual funds. Here is how an NRI can invest in gold in the Indian market:
Physical Gold
You can invest in physical gold, such as gold jewelry, coins, and bars.
Digital Gold
Digital gold is an online gold investment where to can purchase gold in a digital format, which is backed by a physical 24-karat gold. You can trade these on the National Spot Exchange Limited (NSEL). To invest in digital gold, you will need a demat account with a registered brokerage firm.
An investor can purchase and store this gold in a demat form. Additionally, they can also claim digital gold to take physical delivery of the gold if needed.
Gold Exchange-Traded Funds (Gold ETFs)
Gold ETFs permit you to invest in gold in a dematerialized format and are backed by one gram of physical gold with 99.5% purity. Since these are directly linked to the physical prices of gold, you get transparency on the trading price.
The National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE) both list and trade gold ETFs in a manner similar to stocks of any company. Investors can buy and sell units of these gold ETFs through a demat and trading account.
Use either NRE or NRO bank accounts to invest in gold ETFs using funds, and the investment shall be made using a Non-PINS account only.
Gold Mutual Funds
Gold mutual funds are funds of funds that invest in several different forms of gold, like physical gold, gold ETFs, and related assets. You can invest in these directly through a fund house or via distributors like banks, brokerage firms, etc.
You will need a demat and trading account if you want to hold gold mutual funds in a digital form. Funds can be invested in these through your NRE or NRO bank accounts, and the investment shall be done through a Non-PINS account only.
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What are the Guidelines of FEMA and RBI for NRI Gold Investments in India?
Under the regulations of FEMA (Foreign Exchange Management Act) and RBI (Reserve Bank of India), an NRI needs to follow some rules when investing in gold in India:
- Non-Resident Indians must buy gold in India using their NRE/NRO account.
- For foreign remittance, you must use official banking channels.
- There are no limits and restrictions on the amount of gold an NRI can purchase in India.
- NRIs are allowed to carry up to 1 kg of gold (coins or bars) when bringing gold from abroad, subject to paying customs duty.
- You may continue to hold the old SGBs, but you are not allowed to make fresh investments in these bonds.
- Ensure to buy gold from an authorized dealer or bank for purity and documentation.
What are the Tax Implications of NRI Gold Investment in India?
The tax liability of NRI gold investment is determined based on the nature of the transaction and the instruments used. It means both physical gold and digital gold (gold ETFs and gold mutual funds). You are subject to paying capital gains tax in India when you sell such assets. It can be either long-term or short-term, depending on the holding period.
If you receive the gold as a gift/inheritance from relatives (as defined under Section 56 of the Income Tax Act, 1961). Then, it will not be subject to taxation. If you receive the above-mentioned gold assets worth exceeding Rs. 50,000 as a gift from non-relatives. Then, you will have to pay taxes on the overall value of such assets and not only on the excess value over Rs. 50,000.
NRI Gold investments will be taxed as follows:
| Particulars |
Tax Liability |
Tax Rates |
| Sale of physical gold/digital gold |
If the asset is held for less than 24 months, it will be considered a short-term capital gain. |
Taxed at the prevailing income tax slab rates. |
| If the asset is held for more than 24 months, it will be considered a long-term capital gain. |
12.5% without indexation. |
| Sale of gold ETF/gold mutual funds (debt-oriented), purchased before 1st of April, 2023. |
If the asset is held for less than 24 months, short-term capital gain. |
At the prevailing income tax slab rates. |
| If the asset is held for more than 24 months, long-term capital gain. |
12.5% with indexation. |
| Sale of gold ETF/gold mutual funds (debt-oriented), purchased after April 1, 2023, and sold on or before 31 March, 2025 |
The gains acquired on the sale of such assets will be taxed as short-term capital gains, irrespective of the holding period. |
At the prevailing income tax slab rates. |
| Sale of gold ETF/ mutual funds, which were purchased after April 1, 2023, and sold after 31st March, 2025 |
If the asset is held for less than 24 months, short-term capital gain. |
At the prevailing income tax slab rates. |
| If the asset is held for more than 24 months, long-term capital gain. |
12.5% with indexation. |
To Conclude
Investing in gold in India as an NRI is a smart strategy for portfolio diversification and hedging against inflation. However, you need to be careful while understanding the specific regulators and tax considerations. Although NRIs cannot invest in new SGBs, there are various other options for them, like digital forms like gold-exchange traded funds (ETFs) and gold mutual funds.
Furthermore, understanding tax obligations as an NRI can be a bit complicated. However, with some expert guidance, you can determine your taxability easily. Savetaxs is one such NRI taxation expert, serving NRIs with the best taxation consultancy services in India. Our experts carry more than 30 years of combined experience, so you can stay confident with your tax obligations while investing in gold as an NRI in India. Contact us anytime, as we are working 24*7 across all time zones.
Note: This guide is for informational purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA, or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.
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