Income Tax on Gold Jewellery Holdings: An Awareness to Gold Holders

INTRODUCTION

People buy gold for a variety of reasons, such as the desire to wear jewellery or for lucky occasions. However, since there is no cap on the amount of gold one may own, gold also appears to be a popular investment choice for a lot of people. In this context, gold encompasses not only jewellery but also coins, bars, and other forms.

Limits of Holding Gold Jewellery and Ornaments

The CBDT issued a circular on 11 May 1994 which further clarified in a press release that proof of deposit is not required for gold kept within authorized limits.

The above circular states that gold jewelery and accessories are exempted from seizure if:

1. The investigating assessee has disclosed such gold ornaments and ornaments in his property tax return.
2. If an assessee is not liable to wealth tax, gold ornaments and jewelery up to the prescribed limit shall not be confiscated.
3. Excess of the total weight of gold ornaments and jewelery not declared in the wealth tax return shall be forfeited if the assessee is deemed to be subject to wealth tax.

When gold jewelry and ornaments are seized, the assessee is required to provide an explanation of their income source for the purchases. The sum is taxable under section 69B at the rate specified in section 115BBE of the Income Tax Act,1961 if the assessee does not submit an explanation or provides one that is insufficient. The agreed-upon rate is 25% plus 60%. To such a tax, add a 10% penalty and 4% HEC.

The following are the fixed limits on the quantity of jewelery and ornaments which can be possessed by different persons:

1. Married woman 500 gms
2. Single woman 250 gms
3. Men 100 grams

The above restrictions apply only to the family members of the person who initiated the search proceedings. If any jewellery belonging to someone else (not a family member) is found, the tax officials can take it.

GST on the purchase of gold

GST is levied at 3% on gold purchases and 5% on charges.

If you trade gold (say, bars or coins) for new jewellery, no GST has been imposed again up to the weight of the gold swapped. Only the value of excess weight is subject to GST. However, no GST would be levied on the sale of gold.

Income tax on the sale of gold

Sale of gold jewellery/bullion/Gold ETFs/Gold MFs is taxable under the head ‘Capital gains’ as under;

1. If you sell the gold within three years of purchasing it, the profit is considered a short-term capital gain (STCG). The STCG is applied to your income and taxed according to the Act’s particular slab rates.

• If you sell the gold three years after purchasing it, the profit is termed long-term capital gain (LTCG). The LTCG is taxed at 20.8% (20% plus a 4% cess). The purchase cost indexation advantage is offered (to cover inflation cost from the year of purchase to the year of sale)

Long-term Capital Gains Tax (LTCG)

Long-term capital gains tax is applicable when the gold is sold after three years of purchase. LTCG on gold gains is 20% with indexation benefit (Indexation is used to adjust the purchase price of an investment to reflect the effect of inflation on it). This can be waived off if the entire net proceeds from the sale are used to buy government tax benefit bonds like the National Highway Authority of India bonds, REC bonds, among others.

Another way to save taxes is if the net proceeds are used to buy a house either within one year before the sale of gold or within two years of the sale or if the net proceeds are used to build a house within three years of the sale of the underlying gold.

CONCLUSION

Taxation is an integral part of purchasing or selling a capital asset and as gold is a traditional capital asset for Indians, the scenario is no different. We should be cautious of the taxes applicable on the purchase or sale and should pay them when due.

An important part to note here would be that gold investment and ornamental use are two different utilities. In case the primary motive is investment, purchasing the yellow metal on stock exchanges in the form of SGBs or gold ETFs can be a preferred choice since the tax cost is minimized along with costs such as making charges being completely discarded.

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