What are the rules and regulations for Digital Gold in India?

 

What is Digital Gold in India

  • Digital gold is a product in which you buy a digital representation of gold (often in small/fractional units) via online platforms, mobile wallets or fintech apps.

  • Behind the scenes, this is supposed to be backed by physical gold stored in vaults. Users may be able to redeem for physical gold or sell back the digital gold.

  • It is different from gold mutual funds, gold ETFs, Sovereign Gold Bonds, or electronic gold receipts (EGRs) in structure and sometimes regulation.

Regulatory Status & Key Rules

Here are the main regulatory rules / positions and obligations concerning digital gold in India.

Regulatory/Legal AreaWhat the Law or Regulator SaysImplications / What is Required
SEBI (Securities Regulator)Digital gold is not classified as a security under current law. SEBI has clearly stated that investment advisers registered with SEBI must refrain from dealing in digital gold (i.e. giving advice, distributing or executing transactions) because it is an unregulated product under securities law. 

Entities regulated by SEBI cannot include digital gold in advisory services. If a stockbroker or investment platform is regulated under SEBI, they cannot act in relation to digital gold as if it were a regulated investment product.
Stock Exchanges / BrokersThe National Stock Exchange (NSE) has directed its members (stockbrokers) to discontinue the sale/distribution of digital gold from a certain date. This was done because such activity by brokers was considered in contravention of the Securities Contracts (Regulation) Rules, 1957 (SCRR). Stockbrokers must stop offering digital gold via their platforms. Existing investors may continue, but brokers cannot issue new digital gold offers.
SEBI / Debenture TrusteesDebenture trustees have been advised not to act as trustees for digital gold, or otherwise get involved with it (because that is seen as involvement in unregulated product activity). Entities that by regulation are trustees for debentures, or similar responsibilities, should avoid being part of digital gold schemes / custody etc., unless there is a clear regulatory framework.
GST / Goods & Services TaxWhen you purchase digital gold, GST at 3% applies on the value of the gold. This is similar to the GST on physical gold (bars/coins) on the gold content (though making charges etc. may differ). You should factor in 3% GST as cost when buying digital gold. If you later convert to physical gold, additional charges might bring further GST or other fees depending on how the platform handles delivery or redemption.
Capital Gains / Income‑TaxGains from digital gold are taxed like gains from physical gold:
• If held for less than 36 months (3 years) → short‑term gains; taxed at income‑tax slab rate. 
• If held for 36 months or more → long‑term capital gains (LTCG) taxed at 20% plus cess and surcharge, with indexation benefits. 

Investors must keep track of holding period. The cost of acquisition needs to be indexed for inflation for LTCG. Report gains in ITR (Income Tax Return) accordingly.
Conversion between Physical / Electronic FormsThe Union Budget 2023 has clarified that converting physical gold to Electronic Gold Receipts (EGRs) and vice versa (via a SEBI‑registered vault manager) will not trigger capital gains tax. Also, when you get an EGR, the period for which you held the gold before conversion counts for the purpose of holding period. 

This helps people who want to move between physical and electronic holdings without immediate tax liability. Holders should ensure that the vault manager is SEBI‑registered, and maintain good documentation.
Disclosure, Backing and TransparencyWhile there is no single regulation that mandates universal standards for all digital gold providers, media and regulatory voices have raised concerns about:
• whether the digital gold is fully backed by physical gold;
• whether there is adequate auditing / proof of reserves;
• whether investors have clear info about redemption, fees, storage etc. 		Providers should disclose backing, storage, redemption policies, purity, fees, etc. Investors should verify credibility of provider.
Risks & Limitations
Because there is no specific regulatory authority / law that fully covers digital gold as a class, risks include:
• regulatory uncertainty;
• possibility of unbacked or under‑backed gold;
• issues of liquidity, redemption, delivery cost;
• cost spread (difference between buy and sell) and hidden fees;
• limitation on who can sell/distribute digital gold (e.g. stock brokers are barred). 		Investors need to assess these risks before investing. Use trusted platforms, check terms, know whether you can convert to physical, what costs are, etc.

What Is Not (Yet) Regulated / Unclear

  • There is no bespoke law or regulation that treats digital gold like a fully regulated financial product (as of now). It is largely regulated under general tax laws, GST, contract laws, and whatever oversight providers voluntarily adopt.

  • Digital gold is explicitly not covered by SEBI’s securities regulations; hence many securities law protections do not apply. 

  • Some regulatory bodies have issued warnings or directions (e.g., SEBI direction to investment advisers, NSE direction to brokers) rather than full rules or amendment statutes.

  • Clarity sometimes missing around redemption mechanics: minimum weights, delivery fees, conversion costs, time to deliver, etc. Also lacking universal auditing/reporting standards for reserve backing among many providers.

Summary: What You Should Know as an Investor

Here are the key takeaways (brief) for someone considering digital gold:

  • Always check that the digital gold you buy is fully backed by physical gold stored in a secure, auditable vault.

  • Factor in GST (3%) when buying, and any other fees (storage, redemption, etc.).

  • Understand the buy/sell spread ‒ how much you pay more when buying, and how much you get less when selling. These can reduce net returns.

  • Holding period matters: under 3 years vs over 3 years make big difference for capital gains tax.

  • Stock brokers / SEBI‑regulated investment advisers are no longer supposed to sell or advise digital gold. Platforms, wallets etc. may still be offering. Be aware of whether provider is regulated or not.

  • Keep documentations: proof of cost, proof of holding, any agreements regarding redemption etc.

  • Be aware of regulatory risk: rules might change.

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