SEBI flags digital gold risks – here are tax rules that might bite investors harder

As digital gold continues to gain traction across India’s investment landscape, regulators and tax experts are urging investors to fully understand the taxation framework and the risks associated with an increasingly popular yet largely unregulated product. The Securities and Exchange Board of India (SEBI) recently issued a fresh advisory warning consumers that digital gold does not fall under its jurisdiction, nor is it governed by the Reserve Bank of India (RBI) or any recognised commodity exchange. This leaves a vacuum of investor protection at a time when digital-gold transactions are hitting record highs.

According to Sujit Bangar, Founder of TaxBuddy.com, Indians purchased over Rs 9,000 crore worth of digital gold over the past nine months. Monthly purchases surged from Rs 762 crore in January to Rs 1,410 crore in September 2025, an 85% jump. The convenience of buying fractional gold through mobile apps and UPI payments has attracted younger, tech-savvy investors—but without the safety net that typically accompanies regulated financial products.

How digital gold is taxed

When it comes to taxation, digital gold is treated the same as physical gold or jewellery. If sold within two years, gains are classified as short-term capital gains (STCG) and taxed at the investor’s regular income-tax slab rate. If held for more than two years, it becomes a long-term capital asset, with gains taxed at a flat 12.5%, but without indexation benefits. This is a key distinction; physical gold sold after three years earlier enjoyed indexation before the tax regime changed in April 2023.

Investors also face significant friction costs. Buying digital gold attracts 3% GST upfront. On top of this, platforms typically charge a 2–3% spread on buying and potentially a similar margin on selling. As Bangar noted, this means an investor begins with a 5–6% effective loss the moment they make a purchase, much higher than the cost structure of regulated instruments like gold ETFs or sovereign gold bonds (SGBs).

Why SEBI’s warning matters

SEBI’s November 8 advisory highlighted that most digital-gold platforms are not registered with SEBI, RBI or any exchange. This creates a riskier environment because investors have no statutory dispute-redressal framework, no enforced audit trail, and no guarantee that the platform is holding adequate physical gold corresponding to investors’ purchases.

In contrast, Sovereign Gold Bonds—issued by the RBI—offer 2.5% annual interest, price appreciation benefits, and tax-free capital gains at maturity. Similarly, gold ETFs are governed by strict SEBI regulations, feature independent custodianship, and offer liquidity on stock exchanges.

Bangar summarised the decision-making framework succinctly: for short-term exposure, gold ETFs offer transparency and ease of trading; for long-term holding, SGBs remain the most tax-efficient option.

Market growing faster

Despite the warnings, digital gold remains one of the fastest-growing gold-investment avenues in India. The ease of access, fractional purchase options and seamless app-based experience have made it a top choice for new investors. But the lack of regulation means the risks extend well beyond taxation.

The strongest caution comes from Zerodha CEO Nithin Kamath, who warns that digital gold’s biggest problem is trust. “Digital gold is completely unregulated,” he said. “If something goes wrong with the platform, there’s not much you can do.” He emphasized that unlike SGBs or ETFs—backed by custodians, trustees, and regulated disclosures—digital gold relies solely on a private app’s promise. Investors cannot independently verify storage, audits, or accessibility of their holdings. “You’re betting all that money purely on the trust you have in an app,” Kamath cautioned, underscoring why understanding tax rules is important—but understanding the regulatory vacuum is essential.