Tokenisation of real-world assets has emerged as one of the most significant applications of blockchain technology, and gold, given its long-standing role as a store of value, has become a natural candidate for such innovation. In India, however, the legal permissibility of gold tokenisation depends not on technology alone, but on careful alignment with financial, foreign exchange, and securities regulations. The regulatory framework governing gold tokenisation has begun to take shape primarily within the International Financial Services Centre (IFSC) at GIFT City, under the supervision of the International Financial Services Centres Authority (IFSCA).
IFSCA and GIFT City as the Regulatory Anchor
IFSCA has positioned GIFT City as India’s offshore financial hub for innovation in digital finance and tokenised real-world assets. Under the IFSCA Act, 2019, the regulator has consolidated oversight of banking, capital markets, insurance, and bullion markets within the IFSC. This unified regulatory environment allows for controlled experimentation with asset tokenisation, including commodities such as gold, while remaining insulated from many of the restrictions applicable in the domestic Indian market. Gold tokenisation is legally permissible within GIFT City provided it is undertaken by an IFSC-incorporated and IFSCA-regulated entity. Crucially, the framework requires that physical gold must be genuinely acquired and stored with an IFSCA-approved custodian or vault. Tokenisation, therefore, is not viewed as the creation of a new speculative crypto-asset, but as a digital representation of ownership or beneficial entitlement to a tangible underlying asset.
Legal Nature of Gold Tokens
A properly structured gold token is legally characterised as a digitally represented claim on physical gold, for example, one token representing one gram of gold of a specified purity. This distinction is fundamental. Unlike unbacked cryptocurrencies, such tokens derive their legal and economic validity from the existence of physical gold held on a one-to-one basis. The token is neither a currency nor a payment instrument, and it is not intended to function as a medium of exchange. Instead, it is an asset-backed investment product operating within a regulated bullion and digital infrastructure ecosystem.
By clearly defining what the token is and equally what it is not the issuer avoids regulatory overlap with India’s restrictions on private cryptocurrencies, retail digital gold schemes, or payment systems.
Structuring a Gold Tokenisation
The research outlines a practical, regulator-aligned roadmap for launching a gold tokenisation project in India through the IFSC. The first step is conceptual clarity: the issuer must formally document the legal character of the token, ensuring it represents a fully backed beneficial interest in physical gold and excludes features such as anonymous wallets, unrestricted peer-to-peer transfers, or public crypto exchange listings. Next, the issuer must incorporate an IFSC entity, typically a private limited company or LLP registered in GIFT City. This entity becomes the regulated focal point for issuance, custody coordination, compliance, and regulatory engagement. Its constitutional documents and board resolutions must expressly authorise tokenisation and digital asset infrastructure activities. From a regulatory entry perspective, registration as a TechFin or Ancillary Services provider under IFSCA is currently the most viable route for tokenisation-focused projects. This classification recognises the issuer as a provider of regulated digital infrastructure rather than a conventional bullion trader.
Custody, Technology, and Compliance-by-Design
Custody of physical gold is non-negotiable. The issuer must engage an IFSCA-approved bullion vault and execute a detailed custody agreement covering segregation, insurance, audit rights, and release conditions. Regular reconciliation between physical gold holdings and tokens outstanding is essential to maintain regulatory confidence. At the technology layer, IFSCA expects a “compliance-by-design” approach. Tokens must be deployed on a permissioned blockchain where minting, transfers, and redemptions are tightly controlled. Smart contracts must ensure that tokens are minted only after confirmed receipt of gold, burned upon redemption, and subject to pause or freeze controls to address regulatory, AML, or systemic risks. An immutable audit trail of all on-chain actions is critical for supervisory oversight.
Investor Eligibility and Distribution Constraints
One of the most important conclusions of the research concerns investor access. Under the current Indian regulatory regime, particularly FEMA, RBI guidance, and SEBI advisories, gold tokens issued from GIFT City cannot be offered to or marketed at persons resident in India. There is no approved retail framework for domestic distribution. As a result, gold tokens must be sold through a controlled, offshore distribution model limited to non-resident and permitted investors. This involves robust KYC and AML checks, jurisdictional screening, geo-blocking, and smart-contract-level wallet whitelisting. Tokens may be distributed only through private, contractual subscription arrangements rather than public offerings or open trading platforms. The India International Bullion Exchange (IIBX), while central to bullion trading in GIFT City, does not currently support direct listing of blockchain-native gold tokens. Consequently, until regulatory evolution occurs, token distribution must remain private and permissioned.
Tax and Accounting Treatment
From a tax and accounting perspective, gold tokens are treated as digital representations of ownership in the underlying commodity rather than as virtual digital assets. Issuance of tokens does not itself trigger taxation, and the physical gold continues to be recognised on the issuer’s balance sheet in accordance with applicable accounting standards. For investors, gains arising from transfer or redemption are taxed under general capital gains principles applicable to commodities, subject to residency and treaty considerations.
Conclusion
The research ultimately concludes that gold tokenisation is legally viable in India when undertaken within the IFSC framework at GIFT City and structured with strict adherence to IFSCA regulations, FEMA, and allied laws. While domestic retail participation and exchange-based trading are not currently permitted, a carefully designed offshore, asset-backed, and permissioned model allows issuers to unlock the benefits of tokenisation without regulatory conflict. As IFSCA continues to evolve its approach to real-world asset tokenisation, gold tokens may play a foundational role in shaping India’s future digital commodity markets.