You're scrolling through investment advice on a Dubai evening, and everyone's talking about Sovereign Gold Bonds. "2.5% interest plus gold appreciation!" "Tax-free at maturity!" Your WhatsApp groups are buzzing.
You try to invest. The form asks for residential status. You select "NRI." Application rejected.
Welcome to the club of confused NRIs wondering why India's "best gold investment" isn't available to you.
Here's the reality: NRIs cannot invest in Sovereign Gold Bonds. Period. It's a FEMA regulation, not a technicality. And Budget 2025 discontinued SGBs entirely, so even resident Indians can't buy new ones anymore.
But here's the good news: Gold ETFs offer NRIs everything SGBs promised (minus the 2.5% interest), with better liquidity, simpler taxation, and zero compliance headaches. And there are other alternatives that might actually work better for your UAE-based lifestyle.
At Belong, we've worked with thousands of NRIs who initially wanted SGBs but ended up building better gold portfolios through ETFs and other instruments. This article breaks down everything: what SGBs were, why they're restricted, how Gold ETFs work for NRIs, taxation differences, and smarter alternatives that nobody's telling you about.
By the end, you'll know exactly how to add gold to your portfolio from Dubai without any FEMA violations or tax surprises.
The Reality Check: Why NRIs Can't Buy Sovereign Gold Bonds
Let's get this out of the way first because every NRI financial planner seems to conveniently forget to mention it.
The FEMA Restriction
According to FEMA (Foreign Exchange Management Act) regulations, Sovereign Gold Bonds are classified as government securities available only to resident Indians.
When RBI launched SGBs in November 2015, the scheme notification explicitly stated: "The Bonds will be restricted for sale to resident Indian entities."
Why the restriction? Multiple reasons:
1. Capital flow management: SGBs are denominated in grams of gold but settled in rupees. Allowing NRIs could complicate foreign exchange management.
2. Repatriation complexity: SGBs offer tax-free capital gains at maturity. If NRIs could invest and repatriate, it would create taxation and forex complications.
3. Regulatory simplicity: Keeping it resident-only simplifies compliance, reduces documentation, and avoids cross-border tax issues.
According to RBI's Master Direction on Sale of Government Securities, this restriction has been consistent since the scheme's inception and shows no signs of changing.
What If You Become an NRI After Buying SGBs?
Here's an exception: If you bought SGBs as a resident Indian and later became an NRI, you can:
- Continue holding them until maturity (8 years from issue)
- Redeem them early after 5 years on interest payment dates
- Receive interest payments (2.5% annually, credited to your NRO account)
- Get maturity proceeds (credited to NRO account, subject to repatriation limits)
But you cannot buy new SGBs after becoming an NRI.
Savitri from our team encountered this exact situation last month. A client moved to Dubai in 2022 after buying SGBs in 2020. He panicked, thinking he'd have to sell immediately. We clarified: hold them, receive interest, redeem at maturity, and repatriate proceeds (up to USD 1 million/year limit). All perfectly legal.
Budget 2025: SGBs Discontinued Entirely
Even if the FEMA restriction didn't exist, here's the bigger news: Budget 2025 announced the discontinuation of Sovereign Gold Bond issuances.
According to the Finance Ministry's budget documents, the government cited:
- High gold prices making the scheme expensive to manage
- Rising borrowing costs on the 2.5% interest commitment
- Limited appeal compared to other gold investment options
The last SGB tranche was issued in November 2024. No new tranches are planned.
So even resident Indians can't buy new SGBs anymore. Existing bondholders can hold till maturity, but the scheme is effectively closed.
👉 Tip: If you see any platform or advisor claiming they can help NRIs "invest in SGBs" in 2025, run. It's either a scam or gross incompetence.
Also Read -How Much Gold Can I Carry From The UAE To India in United Arab Emirates: Your Complete Guide
What Sovereign Gold Bonds Were (And Why Everyone Loved Them)
Since we're comparing, let's understand what SGBs offered - so you know what you're "missing" and why Gold ETFs are actually fine alternatives.
How SGBs Worked
Structure:
- Issued by RBI on behalf of Government of India
- Denominated in grams of gold (minimum 1 gram)
- Price set at simple average of closing gold price (999 purity) for last 3 business days before subscription
Returns:
- Fixed interest: 2.5% per annum on initial investment amount (paid semi-annually)
- Capital appreciation: Based on gold price movement from issue to redemption
Tenure:
- 8-year maturity
- Early exit allowed after 5 years (on interest payment dates)
- Could be traded on stock exchanges in secondary market
Taxation (for resident Indians):
- Interest income: Taxable as per income tax slab
- Capital gains at maturity: Tax-free (if held for 8 years)
- Capital gains if sold before maturity: Taxed as per debt mutual fund rules (20% LTCG with indexation if held >3 years)
Why They Were Popular
Example: You bought 10 grams of SGB in 2016 at ₹3,100/gram = ₹31,000 investment.
Over 8 years (2016-2024):
- Interest earned: ₹31,000 × 2.5% × 8 years = ₹6,200
- Gold price in 2024: ₹6,200/gram
- Redemption value: 10g × ₹6,200 = ₹62,000
- Capital gain: ₹62,000 - ₹31,000 = ₹31,000 (tax-free at maturity)
- Total return: ₹31,000 + ₹6,200 = ₹37,200 (120% return over 8 years)
- CAGR: ~10.3%
Compare this with physical gold:
- Buy 10g physical gold in 2016: ₹31,000 + making charges (15-20%) = ₹36,500
- Sell in 2024: ₹62,000 - selling discount (5-10%) = ₹58,800
- Net gain: ₹58,800 - ₹36,500 = ₹22,300
- Tax: LTCG at 20% with indexation = ~₹3,000
- Net post-tax: ₹19,300
SGBs gave you nearly double the returns of physical gold, with zero storage worries.
According to SEBI's Investor Education materials, SGBs were indeed one of the most tax-efficient gold investment options - for resident Indians.
What Gold ETFs Are (And Why They Work for NRIs)
Since SGBs aren't an option, let's focus on what is available: Gold Exchange Traded Funds.
How Gold ETFs Work
Structure:
- Mutual fund schemes that invest in physical gold
- Each unit represents a fixed quantity of gold (usually 1 gram of 99.5% purity)
- Traded on stock exchanges (NSE, BSE) like regular stocks
- Backed by physical gold stored in insured vaults by custodians
How to invest:
- Need a Demat and trading account
- Buy/sell ETF units during market hours (9:15 AM - 3:30 PM IST)
- Price tracks real-time gold prices
- Minimum investment: 1 unit (1 gram, approximately ₹6,000-₹7,000)
Popular Gold ETFs in India:
ETF Name | Fund House | AUM (₹ crore) | Expense Ratio |
|---|---|---|---|
SBI Gold ETF | SBI Mutual Fund | 5,800+ | 0.54% |
HDFC Gold ETF | HDFC Mutual Fund | 3,200+ | 0.50% |
ICICI Prudential Gold ETF | ICICI Prudential MF | 2,900+ | 0.50% |
Nippon India Gold ETF | Nippon India MF | 2,100+ | 0.50% |
Kotak Gold ETF | Kotak Mahindra MF | 1,400+ | 0.60% |
(Source: AMFI data as of October 2024)
Why Gold ETFs Work for NRIs
1. FEMA compliant: NRIs can legally invest through NRE or NRO accounts
2. Full repatriation: If invested via NRE account, principal + gains are fully repatriable
3. High liquidity: Buy/sell anytime during market hours, money credited in T+1 days
4. No storage hassles: Physical gold is held by professional custodians in insured vaults
5. Transparent pricing: Real-time NAV tracking actual gold prices
6. Low costs: Expense ratio of 0.50-0.60% annually, much lower than physical gold's making charges
7. Can be used as collateral: Many banks accept Gold ETF units as collateral for loans (though less common than physical gold)
According to SEBI's ETF Master Circular, Gold ETFs must maintain at least 95% of their assets in physical gold, ensuring you're actually getting gold exposure.
How Returns Work
Gold ETFs track domestic gold prices in India. These prices move based on:
- International gold prices (USD/ounce on COMEX)
- USD-INR exchange rate
- Import duties and local premiums
Historical returns (last 10 years):
The average Gold ETF returned:
- 1-year return (Nov 2024 - Nov 2025): ~35% (driven by 40% YTD rally)
- 3-year CAGR: ~15.5%
- 5-year CAGR: ~14.0%
- 10-year CAGR: ~11.2%
These are gross returns before taxes and expense ratios.
Livemint; Moneycontrol(Approximated based on YTD 40% and historical trends; exacts vary by fund.)
👉 Tip: For NRIs, invest in Gold ETFs with the highest liquidity (SBI, HDFC, ICICI) to ensure easy buy/sell even for large positions. Check daily trading volumes on NSE website before investing.
The Head-to-Head Comparison: SGBs vs Gold ETFs
Even though NRIs can't buy SGBs, let's compare both so you understand what you're actually missing (spoiler: not much).
Returns: SGBs vs Gold ETFs
Aspect | Sovereign Gold Bonds | Gold ETFs |
|---|---|---|
Gold price appreciation | Yes (tracks domestic gold) | Yes (tracks domestic gold) |
Additional fixed income | 2.5% p.a. on initial investment | None |
Expense ratio | Nil | 0.50-0.60% p.a. |
Net effective return difference | +2.5% advantage | -0.55% disadvantage |
Reality check: SGBs offered roughly 3% higher returns annually than Gold ETFs purely due to the 2.5% interest component.
Over 8 years, a ₹1 lakh SGB investment would earn ₹20,000 extra in interest compared to Gold ETFs.
But here's the catch: You couldn't access that money for 5-8 years without selling in the secondary market (where liquidity was poor). Gold ETFs let you liquidate in 1 day.
For NRIs with uncertain timelines, liquidity often trumps 2-3% extra returns.
Liquidity: SGBs vs Gold ETFs
Aspect | Sovereign Gold Bonds | Gold ETFs |
|---|---|---|
Lock-in period | 5 years (can exit after that on interest dates) | None |
Trading | Secondary market (low volumes, poor liquidity) | Stock exchange (high liquidity) |
Time to liquidate | Days to weeks (if buyer found) | T+1 day guaranteed |
Exit flexibility | Restricted to specific dates | Anytime during market hours |
Real story: One of our community members held SGBs issued in 2017. In 2022 (year 5), he needed money urgently. He tried selling on NSE - zero buyers for a week. He finally found a buyer at 3% discount to NAV. Painful.
Gold ETFs? Place sell order, executed in seconds, money in your NRE account next day.
Costs: SGBs vs Gold ETFs
Cost Component | Sovereign Gold Bonds | Gold ETFs |
|---|---|---|
Purchase cost | No brokerage (issued by RBI) | Brokerage 0.1-0.5% |
Holding cost | Nil | Expense ratio 0.50-0.60% p.a. |
Exit cost | Nil at maturity | Brokerage 0.1-0.5% |
Total cost over 8 years | ~0% | ~5% (expense ratio + brokerage) |
SGBs were cheaper to hold. No ongoing costs, no brokerage, nothing.
Gold ETFs charge an annual expense ratio to cover gold storage, fund management, and administrative costs.
Over 8 years, this adds up to roughly 4-5% of your investment value.
However: This cost is already reflected in the NAV. When you see Gold ETF returns of 10.8% CAGR over 10 years, that's after deducting expense ratios.
Taxation: This Is Where It Gets Interesting for NRIs
Here's the biggest differentiator - and where Gold ETFs actually aren't too bad for NRIs.
SGB Taxation (if you were a resident who could invest):
Interest income:
- Taxable as "income from other sources"
- Added to total income, taxed as per slab
- For most NRIs: 30% tax on interest
Capital gains at maturity (8 years):
- Completely tax-free (biggest advantage)
Capital gains if sold before maturity:
- Held \<3 years: STCG at slab rate (30% for most NRIs)
- Held >3 years: LTCG at 20% with indexation benefit
Gold ETF Taxation for NRIs (current rules post-Budget 2024):
Gold ETFs are classified as debt-oriented assets for tax purposes (because gold isn't equity).
Capital gains tax:
- Held \<36 months: STCG at slab rate (typically 30% for NRIs + surcharge + cess)
- Held >36 months: LTCG at 12.5% without indexation (as per Budget 2024 changes)
TDS for NRIs:
- TDS @ 20-30% deducted on capital gains at the time of redemption
- Can claim refund while filing ITR if actual liability is lower
Example:
You invest ₹5 lakh in Gold ETF. After 4 years, gold appreciates, your holding is worth ₹7 lakh.
- Capital gain: ₹2 lakh
- Holding period: >3 years, so LTCG applies
- Tax: ₹2 lakh × 12.5% = ₹25,000
- TDS deducted: ₹25,000 (or more depending on surcharge)
- Net proceeds: ₹7 lakh - ₹25,000 = ₹6.75 lakh
Compare with SGB (hypothetically if you could invest):
- Same ₹5L investment, ₹7L at maturity (8 years)
- Capital gain: ₹2L
- Tax: ₹0 (tax-free at maturity)
- Plus interest earned: ₹5L × 2.5% × 8 = ₹1L (taxed at 30% = ₹30K tax)
- Net advantage: ₹25K saved in capital gains tax, but paid ₹30K on interest
Net difference: Not as dramatic as it sounds.
According to Income Tax Act provisions on capital gains, the removal of indexation in Budget 2024 reduced the tax advantage Gold ETFs previously enjoyed, but they're still reasonably efficient.
Safety and Credibility
Aspect | Sovereign Gold Bonds | Gold ETFs |
|---|---|---|
Issuer | Government of India (sovereign guarantee) | Asset Management Companies |
Backing | Sovereign credit | Physical gold in vaults |
Regulatory oversight | RBI | SEBI |
Default risk | Zero (government-backed) | Negligible (physical gold backing) |
Fraud risk | Zero | Very low (SEBI regulated) |
SGBs carried sovereign guarantee - the Indian government promised to pay you at maturity. Can't get safer than that.
Gold ETFs don't have government guarantee, but they're backed by actual physical gold stored in insured vaults. SEBI regulations require regular audits and strict custody norms.
Risk-wise, both are extremely safe. You're not losing sleep over either.
Also Read - Can NRIs Invest in Government Bonds and Treasury Bills?
Digital Gold: The Third Option for NRIs
While we're discussing gold investments, let's talk about digital gold - an option that's simpler than Gold ETFs and accessible to NRIs.
What Is Digital Gold?
Digital gold lets you buy and sell 24-karat (99.99% pure) gold online in rupee amounts as small as ₹1. The gold is stored in insured vaults by the platform.
Popular platforms in India:
- SafeGold
- MMTC-PAMP
- Augmont
- Digital Gold India
How It Works for NRIs
- Sign up on a digital gold platform (many allow NRI accounts)
- Link your NRE/NRO account for payments
- Buy gold in any amount (even ₹100 or ₹1,000)
- Store for free in their vaults (up to certain limits)
- Sell anytime and get money credited to your account
- Optionally convert to physical gold (jewelry, coins) and get it delivered
Digital Gold vs Gold ETFs
Aspect | Digital Gold | Gold ETFs |
|---|---|---|
Minimum investment | ₹1 to ₹100 | ₹6,000-₹7,000 (1 unit) |
Demat account needed | No | Yes |
Trading hours | 24×7 | Market hours only |
Liquidity | Instant buy/sell | T+1 settlement |
Expense | 3-6% spread (buy-sell difference) | 0.5-0.6% annual expense ratio + brokerage |
Taxation | Same as Gold ETF | Same as Digital Gold |
Physical delivery | Yes (can convert to coins/jewelry) | No |
Should NRIs Use Digital Gold?
Good for:
- Small investments (₹1,000-₹50,000)
- Gifting gold to family in India
- Short-term parking (1-6 months)
- People who want simplicity (no demat account)
Not ideal for:
- Large investments (₹1 lakh+) due to higher costs
- Long-term wealth building (Gold ETFs are more efficient)
- People wanting best pricing (buy-sell spread eats into returns)
According to SEBI's review of digital gold platforms, these platforms are currently unregulated, unlike mutual funds/ETFs. SEBI is working on a regulatory framework, but it's not in place yet.
👉 Tip: If you're buying digital gold, stick to the big three platforms (SafeGold, MMTC-PAMP, Augmont). They have proper insurance, vault partnerships, and track records. Avoid random fintech apps offering "gold investments."
Gold Mutual Funds: Another Avenue for NRIs
There's also gold mutual funds (also called Gold Funds of Funds) that invest in Gold ETFs.
How They Work
Gold mutual funds are mutual fund schemes that invest 95%+ of their corpus in Gold ETF units.
Why they exist: For people who want gold exposure without opening a demat account.
Popular options:
- Nippon India Gold Savings Fund
- Kotak Gold Fund
- SBI Gold Fund
- ICICI Prudential Regular Gold Savings Fund
Gold Mutual Funds vs Direct Gold ETFs
Aspect | Gold Mutual Funds | Gold ETFs |
|---|---|---|
Demat account needed | No | Yes |
Minimum investment | ₹100-₹500 | ~₹6,000 (1 unit) |
Expense ratio | 0.6-1.2% | 0.5-0.6% |
Liquidity | T+2 days | T+1 days |
SIP option | Yes | Yes (via broker) |
Taxation | Same as Gold ETF | Same |
For NRIs: Gold mutual funds add an extra layer of expense (0.5-0.7% on top of underlying Gold ETF expense). Unless you strongly dislike demat accounts, go directly with Gold ETFs.
How NRIs Should Actually Invest in Gold ETFs
Let's get practical. Here's exactly how to do this from Dubai.
Step 1: Open Demat and Trading Account
You need three accounts:
- NRE or NRO savings account with an Indian bank
- Demat account to hold ETF units
- Trading account to buy/sell ETFs
NRI-friendly brokers:
- Zerodha (Zerodha allows NRI account opening for select countries)
- ICICI Direct
- HDFC Securities
- Kotak Securities
- Axis Direct
Documents needed:
- Passport (copy)
- Overseas address proof (Emirates ID, utility bill)
- Visa/work permit copy
- PAN card
- Recent photograph
- Cancelled cheque of NRE/NRO account
Process:
- Most brokers now allow online NRI account opening
- Upload documents, complete video KYC
- Link your NRE/NRO bank account
- Account activated in 3-7 days
Our guide on NRI demat accounts covers this in detail.
Step 2: Choose Your Gold ETF
Selection criteria:
- Liquidity: Check average daily trading volume. Higher is better.
- Expense ratio: Lower is better (0.50-0.60% range is good)
- Tracking error: How closely does the ETF track actual gold prices? Check the fund factsheet.
- AUM size: Larger AUM (₹2,000+ crore) indicates stability and liquidity
Recommended for NRIs:
- SBI Gold ETF: Highest AUM, excellent liquidity
- HDFC Gold ETF: Very liquid, reliable fund house
- ICICI Prudential Gold ETF: Good for large trades
All three have expense ratios around 0.50-0.55% and daily volumes in crores.
Step 3: Decide Investment Amount and Frequency
Lump sum vs SIP:
Gold, unlike equity, doesn't have a long-term upward bias. It moves in cycles based on inflation, currency, and macro factors.
Lump sum makes sense if:
- You're diversifying a large portfolio (10-15% allocation to gold)
- Gold has corrected significantly and looks attractive
- You're investing for specific goals (wedding in 3-5 years)
SIP (monthly buying) makes sense if:
- You want to average out the price volatility
- You're building gold allocation gradually (say ₹10,000/month)
- You don't want to time the market
According to research by Morningstar on gold investments, gold's returns are highly volatile year-to-year, so systematic investing reduces timing risk.
Step 4: Place Your Order
Via broker's app/website:
- Search for the Gold ETF (e.g., "SBI Gold ETF")
- Select quantity (1 unit = 1 gram usually)
- Choose order type:
- Market order: Buy at current price (executed immediately)
- Limit order: Buy only at your specified price (executed when price hits your limit)
- Review and confirm
- Money debited from your NRE/NRO account
- Units credited to your demat account in T+1 day
Costs:
- Brokerage: 0.1-0.5% (varies by broker, some offer zero brokerage on delivery)
- Securities Transaction Tax (STT): 0.001% on buy, 0.001% on sell
- GST: 18% on brokerage
- Demat annual maintenance charges (AMC): ₹300-₹750/year (some brokers waive for NRI accounts)
Step 5: Track and Rebalance
Monitoring:
- Check your gold allocation quarterly
- If gold has moved significantly (up 30% or down 20%), consider rebalancing
- Keep gold at 5-15% of your total portfolio
When to sell:
- When rebalancing (gold exceeds target allocation)
- When you need money for goals
- When gold looks overvalued (e.g., gold/silver ratio is extreme, inflation is falling)
Tax planning:
- If selling after >3 years, you get LTCG treatment (12.5% tax)
- Plan sales to optimize tax outgo - don't sell everything in one year if you can spread it
👉 Tip: Set a target allocation for gold (say 10% of portfolio). When gold rallies and becomes 15%, sell 5% and move to equity/debt. When it falls to 5%, buy 5% more. This disciplined rebalancing ensures you're automatically buying low and selling high.
How Much Gold Should NRIs Hold?
"How much gold?" is the question we get asked most.
The Traditional Indian Answer
Indian households have held 10-20% of their wealth in gold historically. It's cultural, emotional, and serves as an inflation hedge.
The Financial Planning Answer
Financial planners typically recommend:
- Conservative investors: 10-15% in gold
- Moderate investors: 5-10% in gold
- Aggressive investors: 0-5% in gold
According to SEBI-registered investment advisors' best practices, gold should be part of asset allocation for its low correlation with equity and debt - not as a return maximizer.
The NRI-Specific Answer
For NRIs, especially those in UAE, we'd suggest:
5-10% allocation to gold instruments
Here's why:
Reasons to hold gold:
- Hedge against inflation (especially if India inflation worries you)
- Diversification (gold moves differently from stocks/bonds)
- Cultural/emotional comfort
Reasons to limit gold:
- Returns are lower than equity over long term (10.8% vs 12-14% for equity funds)
- Doesn't generate income (unlike dividend stocks or rental property)
- You're already hedged if you're earning in AED/USD (strong currency, less inflation impact)
Sample portfolio for UAE-based NRI with ₹50 lakh to invest:
- Equity funds: 40% (₹20 lakh) - for growth
- Balanced/Hybrid funds: 25% (₹12.5 lakh) - for stability + growth
- Debt funds or FDs: 20% (₹10 lakh) - for safety
- Gold ETFs: 10% (₹5 lakh) - for diversification
- GIFT City USD FDs: 5% (₹2.5 lakh) - for USD exposure and tax-free returns
This gives you diversification across asset classes, currencies, and risk levels.
Taxation Deep-Dive: What NRIs Actually Pay on Gold ETFs
Let's get into the nitty-gritty of taxation because this is where most NRIs mess up.
Capital Gains Tax Structure (Post-Budget 2024)
Gold ETFs are treated as non-equity assets (like debt mutual funds).
Short-Term Capital Gains (holding \<36 months):
- Added to your income
- Taxed as per your applicable income tax slab
- For most NRIs with some India-sourced income: 30% slab (plus surcharge and cess)
Long-Term Capital Gains (holding ≥36 months):
- Flat rate of 12.5% (no indexation benefit from FY 2024-25 onwards)
- No exemption limit (unlike equity's ₹1.25 lakh exemption)
TDS for NRIs
When you sell Gold ETFs, your broker will deduct TDS based on:
For STCG: 30% TDS (plus surcharge + cess) = effectively 31.2% - 34.3% depending on surcharge applicability
For LTCG: 12.5% TDS (plus surcharge + cess) = effectively 13% - 14.6%
Example:
You invested ₹10 lakh in Gold ETF. After 4 years, you sell for ₹13 lakh.
- Capital gain: ₹3 lakh (LTCG since held >3 years)
- Tax: ₹3L × 12.5% = ₹37,500
- TDS deducted: ₹37,500 (plus surcharge/cess if applicable)
- Net proceeds: ₹13L - ₹37,500 = ₹12,62,500 credited to your account
ITR Filing
Even if TDS is deducted, you must file ITR in India if:
- Your total India-sourced income exceeds ₹3 lakh (basic exemption limit for FY 2024-25 under new regime)
- You have capital gains from Gold ETFs or any other assets
Forms:
- Most NRIs file ITR-2 (for capital gains, salary from India, rental income)
Process:
- Gather transaction statements from your broker (showing purchase/sale dates, prices)
- Calculate capital gains (your broker may provide a capital gains statement)
- Fill ITR online on Income Tax e-filing portal
- Claim credit for TDS already deducted
- Pay balance tax if any (or claim refund if TDS exceeded actual liability)
According to CBDT guidelines on NRI taxation, ITR filing is mandatory even if all your income is already taxed via TDS.
DTAA Benefits
If you're paying tax on Gold ETF gains in India, check if your resident country has a Double Taxation Avoidance Agreement (DTAA) with India.
For UAE-based NRIs: UAE has no personal income tax, so there's no "double taxation" to avoid. You pay tax only in India.
For US/UK/Canada-based NRIs: You may pay tax in your resident country on worldwide income, including India-sourced capital gains. You can claim Foreign Tax Credit (FTC) for taxes paid in India, reducing your tax liability abroad.
Requires:
- Obtaining a Tax Residency Certificate (TRC) from your country
- Filing Form 67 in your India ITR to claim DTAA benefit
Our detailed guide on DTAA for NRIs covers this process.
Comparing Taxation: Physical Gold vs Gold ETF vs Gold Mutual Fund
Aspect | Physical Gold | Gold ETF | Gold MF |
|---|---|---|---|
STCG rate | 30% (slab rate) | 30% (slab rate) | 30% |
LTCG rate | 12.5% (no indexation) | 12.5% (no indexation) | 12.5% |
LTCG holding period | >36 months | >36 months | >36 months |
TDS for NRIs | 1% at purchase if >₹10L | 30% on STCG, 12.5% on LTCG | Same as ETF |
ITR filing needed | Yes | Yes | Yes |
Taxation is identical across all three. The only difference is in ease of tracking - physical gold requires maintaining purchase invoices for years, while ETFs have digital records.
👉 Tip: Keep a detailed Excel sheet of all your Gold ETF transactions (date, units, price, brokerage). This makes ITR filing infinitely easier. Most brokers provide P\&L statements, but having your own tracker helps verify.
Alternatives to Gold ETFs for NRIs
If Gold ETFs don't appeal to you, here are other ways to get gold exposure:
1. International Gold ETFs
If you have investment accounts in the US, UK, or UAE, you can buy international gold ETFs:
Popular options:
- SPDR Gold Shares (GLD): Largest gold ETF globally, listed on NYSE
- iShares Gold Trust (IAU): Low expense ratio (0.25%)
- Physical Gold ETC (SGOL): Tracks LBMA gold price
Advantages:
- Returns in USD (no rupee depreciation risk)
- Highly liquid (billions of dollars traded daily)
- Lower expense ratios (0.15-0.40%)
Disadvantages:
- Need US/international brokerage account
- Subject to US taxation rules (if you're not US taxpayer)
- Can't easily repatriate to India if you return
2. Physical Gold (But Do It Right)
If you insist on physical gold, here's how to do it smartly:
Buy only:
- Gold coins from reputed mints (999 purity, certified)
- Plain gold bars (no making charges)
Avoid:
- Jewelry (15-25% making charges eat your returns)
- From random jewelers (purity concerns)
Where to buy:
- Banks (SBI, HDFC, ICICI sell gold coins)
- India Government Mint
- MMTC-PAMP
- Augmont
Storage:
- Bank locker (₹1,500-₹10,000/year depending on size and branch)
- Home safe (high security risk, insurance issues)
According to RBI's data on gold imports, NRIs can bring up to 1 kg of gold per person on arrival in India (after staying abroad for minimum 6 months), duty-free. Beyond that, customs duty applies (currently 6% + 3% GST).
3. Gold Savings Accounts
Some banks offer "Gold Savings Accounts" where you buy gold in fractional amounts and store it with them:
- HDFC Gold
- ICICI Bank Gold
- Axis Bank Gold
How they work:
- Buy gold in grams or rupee amounts
- Stored in bank's vault
- Can sell back to bank or convert to physical coins/jewelry
- Charges: 3-5% on buy-sell spread
Essentially similar to digital gold platforms but offered by banks.
4. The GIFT City Alternative (Not Gold, But Worth Knowing)
Since we're discussing NRI investment alternatives, let's talk about something completely different that solves the "safe, tax-free, stable returns" need:
Not gold, but hear us out.
What they offer:
- 4.5-65.0-5.5% annual returns in USD
- Completely tax-free (no TDS, no ITR filing needed)
- DICGC insured (like FDIC in US)
- Full repatriation to any country
- No currency risk (returns in USD)
Why we're mentioning this:
Many NRIs invest in gold for "safety and stability." But gold is volatile (±20% swings are common). If your goal is capital preservation with some returns, GIFT City FDs are actually better.
Comparison:
Aspect | Gold ETF | GIFT City USD FD |
|---|---|---|
Returns | 10-12% (historical, volatile) | 4.5-65.0-5.5% (guaranteed) |
Taxation | 12.5-30% | 0% |
Currency risk | Yes (rupee-denominated) | No (USD) |
Volatility | High (±20% annually) | Zero |
Liquidity | T+1 day | 7-30 days |
ITR filing needed | Yes | No |
If you allocate 15% to gold and 15% to FDs/debt, consider:
- 10% Gold ETFs (for inflation hedge)
- 20% GIFT City FDs (for stable, tax-free USD returns)
This gives you the best of both worlds.
Check current GIFT City FD rates and compare with traditional NRE/FCNR FDs - the tax-free advantage is massive.
Common Mistakes NRIs Make with Gold Investments
From working with thousands of NRIs, here are the top mistakes we see:
Mistake 1: Trying to "Invest" in SGBs
Despite clear FEMA restrictions, NRIs keep asking advisors "how to invest in SGBs." Some unethical advisors even suggest:
- Using a resident relative's account (illegal)
- Not updating NRI status (FEMA violation)
- "Buying in secondary market" (still not allowed)
Fix: Accept reality. SGBs aren't available. Focus on legal, compliant alternatives.
Mistake 2: Buying Physical Gold Without Proper Documentation
You buy gold jewelry from Dubai Gold Souk, carry it to India on your next visit, and keep it at home.
Fast forward 5 years, you want to sell. Buyer asks for purchase invoice. You have none. Buyer suspects "black money" and walks away. Or worse, you sell, then income tax department asks for source of gold during scrutiny.
Fix: Always buy gold with proper invoices. If carrying from abroad, declare it in customs (if exceeding limits) and keep baggage tag receipt.
Mistake 3: Holding Too Much Gold
We've met NRIs with 40-50% of their portfolio in gold. This is cultural, but financially suboptimal.
Over 20 years:
- Equity funds: 12-15% CAGR
- Gold: 10-11% CAGR
That 2-4% difference compounds to huge wealth loss over decades.
Fix: Limit gold to 10-15% maximum. Rest in equity, debt, and balanced funds.
Mistake 4: Investing Through NRO Instead of NRE
If you invest in Gold ETFs through NRO account, repatriation is capped at USD 1 million per year and requires Form 15CA/15CB documentation.
If through NRE account, fully repatriable with no paperwork.
Fix: Always route investments through NRE account for full repatriation flexibility.
Mistake 5: Not Tracking Cost Basis for Tax
You bought Gold ETF units over 5 years via SIP. Now selling. Which units did you sell first (for tax calculation)?
Income tax follows FIFO (First In, First Out) method for mutual funds/ETFs unless you specify otherwise.
If you don't track, your CA will struggle with ITR filing.
Fix: Maintain a simple Excel sheet: Date, Units Bought, Price, Amount, Brokerage. Update every transaction. Your future self will thank you.
Mistake 6: Panic-Selling During Gold Corrections
Gold falls 15% in 3 months. You panic, sell Gold ETF at a loss, then regret when it bounces back 20%.
Gold is volatile. It's meant for long-term holding (5-7 years minimum), not trading.
Fix: Set a target allocation (say 10%). Rebalance only when it deviates significantly (13% or 7%). Ignore short-term volatility.
Mistake 7: Ignoring Currency Risk
Gold ETFs in India are rupee-denominated. Their returns include both gold price changes AND rupee depreciation vs USD.
If international gold rises 5% (in USD) and rupee depreciates 3%, Indian gold ETF returns are ~8%.
Sounds great, but if you're earning in AED (pegged to USD), that 3% rupee depreciation is a hidden cost when you eventually repatriate.
Fix: For NRIs, consider allocating some gold exposure to international gold ETFs (in your US/UAE brokerage) if you're not planning to return to India soon.
Also Read -How to Invest in Bonds - Beginner's Guide for NRIs
Final Thoughts: The Smart Gold Strategy for UAE-Based NRIs
Here's the bottom line after 5,000+ words:
Sovereign Gold Bonds are off the table. No amount of clever structuring or wishful thinking will change FEMA regulations. Accept it and move on.
Gold ETFs are your best bet. They're liquid, regulated, reasonably taxed, and fully repatriable via NRE accounts. Yes, you lose the 2.5% interest, but you gain flexibility, transparency, and simplicity.
Digital gold works for small amounts. If you want to gift ₹10,000 worth of gold to your niece on her birthday, digital gold is perfect. For serious investing (₹1 lakh+), stick with Gold ETFs.
Keep gold at 10-15% of your portfolio. Don't overdo it. Gold is a hedge, not a wealth-builder. Your equity and balanced funds will do the heavy lifting.
Consider GIFT City for the tax-free, stable portion. If you're allocating to gold for "safety," ask yourself if 5.5% tax-free USD returns aren't safer than volatile gold. Maybe 10% gold + 10% GIFT City FDs is smarter than 20% gold.
Invest through NRE, not NRO. Full repatriation flexibility is worth it. Don't lock yourself in.
Track everything. Maintain records of every transaction. ITR filing will be a breeze, and you'll never face scrutiny from income tax department.
At Belong, we've built our entire platform around helping NRIs make smarter financial decisions. Whether it's comparing Gold ETFs with FD rates across banks, understanding your tax residency status, or exploring GIFT City investment options, we're here to simplify the complexity.
And if you're tired of navigating this alone, join our WhatsApp community of 5,000+ UAE-based NRIs. Ask questions. Share experiences. Learn from others who've been exactly where you are.
Or download the Belong app and start investing smarter today. Your future self will thank you for reading this article and taking action.
Because gold is great. But it's the strategy that makes you wealthy.
Frequently Asked Questions
Can NRIs invest in Sovereign Gold Bonds in 2025?
No, NRIs cannot invest in Sovereign Gold Bonds as per FEMA regulations. This restriction has existed since SGBs were launched in 2015. Additionally, Budget 2025 discontinued new SGB issuances entirely, so even resident Indians cannot buy new SGBs anymore. NRIs who bought SGBs before becoming NRIs can continue holding them till maturity.
What is the best alternative to Sovereign Gold Bonds for NRIs?
Gold ETFs are the best alternative for NRIs. They offer similar gold price exposure, high liquidity (T+1 settlement), SEBI regulation, low costs (0.5-0.6% expense ratio), and full repatriation if invested through NRE accounts. The only thing missing is the 2.5% annual interest that SGBs offered, but Gold ETFs compensate with superior liquidity and lower lock-in.
How are Gold ETFs taxed for NRIs in India?
Gold ETFs are taxed as non-equity assets. Short-term capital gains (holding \<36 months) are taxed at your slab rate (typically 30% for NRIs). Long-term capital gains (holding ≥36 months) are taxed at 12.5% without indexation benefit. TDS is deducted at source when you sell. You must file ITR to claim credit for TDS and report capital gains.
Can NRIs buy digital gold in India?
Yes, NRIs can buy digital gold through platforms like SafeGold, MMTC-PAMP, and Augmont. You need to link your NRE or NRO account for payments. Digital gold allows buying in small amounts (even ₹1), 24×7 trading, and option to convert to physical gold. However, costs are higher (3-6% buy-sell spread) compared to Gold ETFs, making ETFs better for larger investments.
Should NRIs invest in Gold ETFs through NRE or NRO account?
Always use NRE account for Gold ETF investments. NRE accounts offer full and free repatriation of principal and gains to any country without documentation hassle. NRO accounts have USD 1 million/year repatriation limit and require Form 15CA/15CB submission. Since Gold ETFs can be bought through either account type, choose NRE for maximum flexibility.
How much gold should NRIs hold in their portfolio?
Financial advisors typically recommend 5-15% allocation to gold depending on your risk profile. For NRIs, 10% is a reasonable allocation - enough for diversification and inflation hedging, but not so much that it drags down overall returns (gold returns 10-11% vs 12-15% for equity). If you have strong emotional attachment to gold, max out at 15%, but no more.
Are international Gold ETFs like GLD better than Indian Gold ETFs for NRIs?
It depends on where you'll eventually use the money. International Gold ETFs (like GLD, IAU) offer USD returns, higher liquidity, and lower expense ratios (0.15-0.40%). But if you plan to return to India or use money in India, you'll face currency conversion and repatriation hassles. Indian Gold ETFs via NRE accounts offer seamless repatriation to India. Diversifying across both is ideal if you have investment accounts in multiple countries.
Sources & References:
RBI Master Direction on Government Securities
SEBI Investor Education on SGBs
Value Research Gold ETF Returns
CBDT Guidelines on NRI Taxation
