All About Taxation of ETFs in India
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Taxation of Exchange Traded Funds (ETFs) in India
| Particulars | Equity ETFs | Gold & Silver ETFs | Debt ETFs |
|---|---|---|---|
| Examples | Nifty 50 ETF, Sensex ETF, Bank Nifty ETF, Bharat 22 ETF | Nippon Gold ETF, HDFC Gold ETF, SBI Silver ETF | Bharat Bond ETF, Government Bond ETF, Corporate Bond ETF |
| Source of Income | Dividend & Capital Gains | Dividend & Capital Gains | Dividend & Capital Gains |
| Dividend Taxation | Taxable at investor’s slab rate | Taxable at investor’s slab rate | Taxable at investor’s slab rate |
| Short-Term Capital Gains Holding Period | Up to 12 months | Up to 12 months | Not relevant for units acquired on or after 01.04.2023 |
STCG Tax Rate |
20% u/s 111A (subject to STT) | Taxed at normal slab rates | Taxed at normal slab rates |
| LTCG Holding Period | More than 12 months | More than 12 months | No separate LTCG benefit for units acquired on or after 01.04.2023 |
| Long-Term Capital Gains Tax Rate | 12.5% on gains exceeding ₹1.25 lakh | 12.5% without indexation | Taxed at normal slab rates |
| Indexation Benefit | Not Available | Not Available | Not Available |
| STT Requirement | Required for concessional tax treatment | Not applicable | Not applicable |
| Expenses Allowed Against Capital Gains | Brokerage, transfer-related expenses, stamp duty | Brokerage, transfer-related expenses, stamp duty | Brokerage, transfer-related expenses, stamp duty |
| STT Deduction | Not Allowed | Not Allowed | Not Allowed |
| ITR for Investor | ITR-2 (Capital Gains) | ITR-2 (Capital Gains) | ITR-2 (Capital Gains) |
| Frequent Trading Treatment | May be treated as Business Income | May be treated as Business Income | May be treated as Business Income |
Business Income Tax Rate |
Normal slab rates | Normal slab rates | Normal slab rates |
| Expenses Allowed in this Business | Brokerage, Demat charges, internet, software, research subscription, advisory fees, audit fees | Same | Same |
| Loss Carry Forward (Business Income) | Up to 8 years | Up to 8 years | Up to 8 years |
| Closing Stock Required | Yes, if treated as business | Yes, if treated as business | Yes, if treated as business |
| ITR Form for Business Activity | ITR-3 | ITR-3 | ITR-3 |
| Nature of Business Code | 21011 – Buying & Selling of Shares | 21011 – Buying & Selling of Shares | 21011 – Buying & Selling of Shares |
| Tax Audit Applicability | As per Section 44AB turnover limits | As per Section 44AB turnover limits | As per Section 44AB turnover limits |
Example of Gold & Silver ETF Traders
| Particulars | Position |
|---|---|
| Buy Transactions | 559 |
| Sell Transactions | 559 |
| Holding Period | Mostly within a week (maximum 111 days) |
| Closing Stock | Available at year-end |
| Nature of Activity | Frequent, systematic, organized trading |
| Likely Tax Head | Profits & Gains from Business or Profession |
| Business Type | Non-Speculative Business |
| Recommended ITR | ITR-3 |
| Business Code | 21011 – Buying and Selling of Shares |
| Closing Stock Treatment | Valued at Cost or NRV, whichever is lower |
| Loss Treatment | Non-speculative business loss can be carried forward for 8 years |
For frequent Gold & Silver ETF trading involving 559 buys and 559 sells with short holding periods, the activity is more appropriately reportable in ITR-3 under Business Code 21011 (Buying and Selling of Shares) as non-speculative business income, subject to consistency with past tax positions and tax audit provisions.