SEBI has been notified as the regulator of gold exchanges in the country. SEBI has come up with the ‘Framework for operationalizing the Gold Exchange in India’ vide Circular dated January 10, 2022 and has also declared the instrument for trading in Gold Exchange ,i.e., EGRs as ‘securities’ under Section 2(h)(iia) of the Securities Contracts (Regulation) Act 1956 dated December 24, 2021 vide Gazette notification. The SEBI Regulations, 2021’ provides that any person willing to carry on the business of providing vaulting services in relation to gold, i.e., storage and safekeeping of physical gold deposited by the depositor for the purpose of trading in EGRs may apply to SEBI and obtain registration to act as a Vault Manager. The Framework provides that stock exchanges willing to trade in EGRs may apply to SEBI and begin trading in EGRs in new segment. A structure of the transactions in respect of creation, trading and conversion of EGR into Physical Gold has also been defined.


In line with these new developments, it is proposed to bring following amendments in the ITA to make the conversion of physical gold into EGR and vice versa tax neutral:

  • New provision, S. 47(viid), is proposed where under the conversion of physical gold (held as capital asset) into EGRs issued by a Vault Manager and vice versa, shall not be considered as ‘transfer’ within the meaning of S. 47 of the ITA. Hence, there would be no capital gain arising at the time of mere conversion.
  • Further, S. 2(42A) is proposed to be amended to include the period of holding of the converting asset in the period of holding of the converted asset. In other words, the period of holding of EGRs would include even the period for which the physical gold was held by the assessee prior to conversion into EGRs and vice versa. (Clause (hi) to Explanation 1 of S. 2(42A)).
  • Lastly, it is proposed that the Cost of Acquisition of EGRs shall be deemed to be the cost of gold in the hands of the person in whose name EGRs is issued. Similarly, where gold is released against an EGRs, the COA of the gold shall be deemed to be the cost of the EGRs in the hands of such person. (S. 49(10)).

These amendments will become effective from April 1, 2024 and shall accordingly, apply in relation to the AY 2024-25 and subsequent AYs.


There is an ambiguity in relation to the indexation benefit. A clarification is also needed with regard to the classification of Electronic Gold Receipts (ECRs) as Short term or Long term, whether EGRs must be considered as a Capital Asset (36months/ 3 years) or as a Security (12 months/1 year).

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