Jigar M. Patel
International Tax Attorney
One precious metal, the value of which has appreciated over time is gold. People buy gold for various reasons, may it be for auspicious occasions, for the love of wearing ornaments or even as a favoured investment option.
Is there any Limit to hold Gold?
As such, there is no limit on how much gold or jewellery you can keep at home or in your bank locker, provided you can explain the source or manner in which you acquired the same, either by way of purchase, gift or inheritance. From the point of view of the scope for inquiry or investigation by the tax authorities and guidelines for search officials in regard to seizure during the course of search, CBDT Instruction No. 1916 dated 11th May, 1994 has clarified that where the taxpayer has declared such jewellery and ornaments in his wealth-tax return, the same may be accepted. In other cases, the following limits have been laid down for accepting the gold ornaments held by an individual, without requirement for any submission of proof or evidence:
- Married lady: 500 grams of gold
- Unmarried lady: 250 grams of gold
- Male member: 100 grams of gold
The aforesaid Instruction also explains that having regard to the status of the family and the custom and practices of the community to which the family belongs and other circumstances of the case, tax authorities may decide to exclude a larger quantity of jewellery and ornaments from seizure.
Watch out for the hefty tax on Unexplained Gold and Jewellery
Section 69A read with Section 115BBE of the Income-tax Act carry stringent provisions for taxing the value of gold or jewellery, the source of which cannot be satisfactorily explained. Considering the flat rate of income-tax of 60% and surcharge of 25% thereon, alongwith the prevailing Cess of 4% and penalty of 10% on tax, the effective burden of tax and penalty in such a case would work out to a hefty 84%.
GST aspects on Buying / Selling Gold?
The Goods and Service Tax (GST) is applied at 3% on acquiring gold and 5% on the associated making charges. In the case of exchanging gold items such as bars or coins for new jewellery, no additional GST is imposed up to the weight equivalent to the exchanged gold (bars or coins). GST only applies to the value exceeding the weight of the exchanged gold. It is important to note that no GST is levied on the outright sale of gold.
Income-tax Implications on Gift or Sale of Gold
Receipt of gold in the form of jewellery, ornaments or bullion by way of gift is treated as taxable income under the head other sources, if the aggregate value of gifts during a financial year exceeds ₹50,000, unless the same falls under any of the specific exemptions provided for under the Act. Such gifts received from specified relatives or on the occasion of marriage are treated as exempt. Moreover, the receipt of any gold under a Will or by way of inheritance is also completely exempt from tax. A taxpayer would be well advised to maintain supporting documentary evidence in this regard, with a view to be in a position to explain the source of such acquisition.
Gold being a capital asset, any sale of physical gold, jewellery or ornaments would entail capital gain tax implications, either short-term or long-term, depending on the period of holding. The rules in regard to adopting the cost of acquisition, determining the period of holding and indexation, as applicable in case of long-term capital assets would also appropriately apply in case of jewellery and ornaments.
