Tax on Gold Jewellery in India

Tax on Gold Jewellery in India

Gold is amongst the most favourite and preferred investment avenues in India. There is no doubt that over a period of time, gold has given good returns to investors. Investment in gold is regarded as safest and risk-free by Indian households. In a previous article, we discussed the “Gold Retention Limits in India”. Now, in this article, we shall discuss the income tax implications in case of the purchase and sale of gold or gold jewellery in India.

Investment in gold nowadays is not limited only to purchasing and holding physical gold or gold jewellery. Rather, you can also invest in gold in digital mode like gold exchange-traded funds (ETFs), Gold-based mutual funds, sovereign gold bonds etc. The first choice of Indian households is buying gold and storing it physically. Young investors are though preferring to invest in gold in the digital manner also.

What are the limits for holding gold jewellery and ornaments?

The first thing you should make clear is that there is no limit on holding gold jewellery or ornaments if it has been acquired from the source of income duly explained. The CBDT had issued a circular dated 11^th May 1994 further clarified through a Press Release in this regard which states that no proof of investment is required for the gold possessed within the prescribed limits.

The above circular provides that the gold jewellery and ornaments need not be seized if:

• The assessee being searched has disclosed such gold jewellery and ornaments in his wealth tax return.
• The assessee is not assessed to wealth tax, then gold jewellery and ornaments up to the prescribed limits will not be seized.
• Where the assessee is assessed to wealth tax, then only the excess of the gross weight of gold jewellery and ornaments not declared in the wealth tax return will be seized.

On seizure of such gold jewellery and ornaments, the assessee shall be given an opportunity for explaining the source of income for making such investments. If the assessee fails to provide an explanation or the explanation given is not satisfactory, then the same shall be taxable u/s 69B read with section 115BBE of the Income Tax Act. The rates prescribed under section 115BBE are 60% plus a surcharge of 25% plus health & education cess @ 4% along with a penalty of 10% on such tax.

Prescribed Limits of gold jewellery & ornaments a person can hold

Income Tax on Gift of Gold Jewellery/ Bullion/ Gold ETFs/ Gold MFs

Gifts are taxable in India if you receive a gift in excess of the value of Rs. 50,000. Thus, if you receive a gift in the form of gold jewellery/ bullion/ Gold ETF/ Gold MF etc. the same shall be taxable in your hands in the case where the value of such gold on the date of the gift is more than Rs. 50,000. Such taxable gifts should be declared under the head “Income from Other Sources” while e-filing of Income Tax Return. Tax on such gift shall be levied at the tax slab rates as applicable to you.

But there are few exceptions to the above law where the gift of gold jewellery/ bullion/ ETF/MF shall not be taxable. These exceptions are as below:

• In case the gift of gold jewellery/ bullion/ ETF/MF is received from a specified relative, it will be exempted from income tax. Please note that there is no monetary limit on gifts from a specified relative.

 To Know More Read: Gifts from Specified Relatives

• Gifts received on the occasion of marriage from friends or relatives are exempt from income tax.

• Gold Jewellery/Bullion/ ETF/MF received as inheritance under a will or under succession shall not be taxable at the time of inheritance or succession.

Note: To avoid demands & penalties, it is advisable that any such gift or inheritance should be duly supported by a deed. The A.O. may ask you for a gift deed at the time of scrutiny. Though writing a gift deed for gold jewellery/ bullion is not mandatory but it will be easier to prove the source of gold if you are having a duly notarised gift deed in respect of the gift.

Income Tax on sale of Gold

Gold jewellery/ bullion/ Gold ETFs/ MF etc. is classified as “capital asset” as per the Income Tax provisions. As such, any sale of gold jewellery/ bullion/ ETF/MF shall be liable for tax under the head “Capital Gains” during ITR filing. Capital Gains on the sale of gold jewellery/ bullion/ ETF/MF can be classified as Long Term Capital Gains or Short-Term Capital Gains based on the period of holding.

• In case any of the above assets are sold after holding for 3 years, the gain arising on the sale of such assets shall be treated as “Long-Term Capital Gain”. The tax rate applicable on long-term capital gain is 20% plus cess @ 4%. Thus, the effective tax rate is 20.80%. It is important to note that indexation benefits shall be available in case of long-term capital gains on the sale of gold jewellery/ bullion/ ETF/MF etc.

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• In case any of the above assets are sold before the completion of 3 years from the date of purchase, the gains arising on such sale are treated as “Short-Term Capital Gains”. As per the Income Tax law, short-term capital gains are liable for tax at the individual tax slab rates applicable.

How to save tax on gains on the sale of gold?

If you have derived a long-term capital gain on the sale of gold jewellery/ bullion/ ETF/MF, you can save tax on such gains legitimately by following the provisions of the Income Tax Act, 1961. Section 54F provides the remedy for the same. But the benefit of section 54F can be availed by the individuals and Hindu Undivided Family (HUF) only.

Section 54F of the Income Tax Act

According to Section 54F, an individual or HUF can save tax on long-term capital gains arising on the sale of gold jewellery/ bullion/ ETF/MF if they invest the entire sale proceeds in the purchase or construction of residential house property. To get exemption under section 54F, the residential house property must be purchased within either one year before or two years after the date of sale of gold. In the case of construction of residential house property, the construction must be completed within 3 years from the date of sale of gold. There are certain conditions attached to the claim of exemption under section 54F.

GST on purchase of gold

Gold Jewellery is subject to GST @ 3% on the value of the gold and 5% on making charges. If you exchange old jewellery or gold bars or coins etc. for new jewellery, no GST is payable on such exchange except the value of the excess weight of gold purchased by you. If any making charges are levied by the jeweller in addition, then it will be subjected to GST @ 5%.

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