Taxation Of ETFs In India: LTCG, STCG, And Recent Budget Changes

Why This Depends Entirely On What The ETF Actually Holds

There is no single ETF tax rate. Treatment follows the underlying asset class the fund actually holds, equity, gold or silver, debt, or international, and each category has its own holding period thresholds and rates, several of which changed meaningfully through the July 2024 budget and subsequent amendments taking effect through FY 2025 to 2026.

Equity ETFs

Equity ETFs, tracking indices like the Nifty 50 or the Sensex and covered throughout this series, follow the standard equity capital gains regime. Short term gains, on units sold within 12 months, are taxed at 20% under Section 111A. Long term gains, beyond 12 months, are taxed at 12.5% above a Rs 1.25 lakh annual exemption. Securities Transaction Tax applies to these transactions.

Gold And Silver ETFs: Listed Securities, Not Physical Commodities

Because gold and silver ETF units are exchange listed, they qualify for the 12 month long term threshold that listed securities generally receive, rather than the 24 month threshold that physical gold and silver, and digital gold, still carry.

That distinction is the specific reason the ETF wrapper has become considered the more tax efficient way to hold precious metals for a patient investor. Long term gains on gold and silver ETFs are taxed at 12.5% without indexation, and unlike equity ETFs, there is no Rs 1.25 lakh annual exemption available, since that exemption is specific to equity oriented holdings.

Short term gains are taxed at slab rate. Securities Transaction Tax does not apply to gold or silver ETF transactions, and neither does GST.

	Gold Or Silver ETF	Physical Gold Or Silver
Long term capital gains threshold	12 months, as a listed security	24 months
Long term capital gains rate	12.5%, no indexation	12.5%, no indexation
Securities Transaction Tax	Not applicable	Not applicable, different transaction structure entirely

Twelve months instead of twenty four is not a small technicality. It is the entire reason a patient gold investor now has a real incentive to hold the ETF instead of the coin.

Debt ETFs Remain Under The Harsher Rule

Debt ETFs did not receive the same carve out gold and silver ETFs did. From FY 2025 to 2026, Section 50AA's rule deeming all gains short term, regardless of actual holding period, applies specifically to funds investing more than 65% in debt and money market instruments, a threshold most debt ETFs cross by design.

That means debt ETF gains are generally taxed at the investor's slab rate no matter how long the units were held, with no long term treatment or indexation available at all, covered in more depth in our earlier debt ETF article.

International ETFs

International ETFs, covered in more depth in our earlier article on Nasdaq and S&P 500 exposure, were also excluded from Section 50AA's harshest treatment starting FY 2025 to 2026, unlike debt ETFs. The exact current long term threshold and rate for this specific category has genuinely evolved over the past two budget cycles, and is worth confirming directly for the specific fund you hold rather than assumed from either the older or newer rule.

Dividends Are Simple, At Least

Since the Finance Act 2020 abolished Dividend Distribution Tax, dividends from any ETF, regardless of what it holds, are added to the investor's total income and taxed at their own slab rate. This is the one part of ETF taxation that does not depend on the underlying asset class.

The Timeline Of Change, For Gold And Silver Specifically

Period	Rule
Before April 2023	36 month holding period required for long term treatment
April 2023 to July 22, 2024	All gains taxed at slab rate regardless of holding period, under Section 50AA
Finance Act 2024 onward, effective through FY 2025 to 2026	Long term treatment restored, with a 12 month threshold as a listed security, taxed at 12.5% without indexation

Losses Can Cross Asset Classes

Our earlier article on tax loss harvesting covered the underlying set off rules in detail: a short term capital loss can offset both short term and long term capital gains from any capital asset, while a long term capital loss can only offset long term gains, also from any capital asset.

Applied here, that means a long term capital loss on a gold ETF can genuinely be set off against a long term capital gain on an equity ETF in the very same year, a useful, concrete cross category illustration of a rule that is easy to read about abstractly and miss in practice. Unused losses can be carried forward for up to 8 assessment years, provided the return for the loss year was filed on time.

The Cess Nobody Quotes In The Headline Rate

A 4% health and education cess applies on top of both short term and long term capital gains tax, pushing the effective long term rate to roughly 13% for most retail investors rather than the flat 12.5% usually quoted, and surcharge adds further for high income taxpayers above certain thresholds. Worth building into any calculation rather than assumed away.

Note: One correction worth flagging directly. Our earlier silver ETF article in this series cited a commonly repeated 24 month long term capital gains threshold for silver ETFs, based on sources available at the time. More detailed, more recent research for this specific tax focused article points the other way: gold and silver ETFs are both exchange listed securities, and both carry a 12 month long term threshold, half the 24 month clock that physical gold and silver still run on. Treat the 12 month figure below as the better supported current answer, and confirm the specific rule for your own holding directly given how much this exact area has moved.

This article is for general informational purposes only and does not constitute tax or investment advice. Tax rates, holding periods, and rules described here reflect the position understood as of July 2026 under the Income Tax Act as amended, and have changed more than once in recent years for several of the categories covered. Confirm current classification and applicable rules for any specific ETF directly with a qualified Chartered Accountant before filing or transacting, and consult a qualified financial adviser for investment guidance specific to your situation.