Have you ever seen how many people flaunt themselves by wearing kilos of gold on their bodies? You must have seen them and wondered whether it is allowed to hold such an amount of gold. You may also be plagued with different questions about investing in gold, like should I disclose the investment made in gold? What are the precautions I need to take from a tax perspective? All these questions assume importance given the government’s recent thrust on tracking unaccounted monies and investments. Read on to know more details.
People purchase gold for various reasons, whether for auspicious occasions, a love of wearing ornaments, or as an investment. Here, gold does not only mean jewellery; it also includes gold coins, gold bars, and other forms.
Is There any Limit for Holding Gold Jewellery and Ornaments?
The first point to remember is that there is no restriction on possessing gold jewellery or ornaments, provided they are obtained from a legitimate income source and the taxpayer can explain the source. This source includes gold acquired from inheritance as well.
However, there is a prescribed limit on the quantity of jewellery and ornaments that different persons can hold without requiring to explain the source of such gold:
Particulars | Limit per person |
Married woman | 500 gms |
Unmarried woman | 250 gms |
Men | 100 gms |
The above restrictions apply exclusively to family members of the person against whom search procedures have been commenced. If any jewellery belonging to another person (not a family member) is discovered, tax officers may take it.
CBDT Circular on Holding Gold Jewellery and Ornaments
The CBDT issued a circular on May 11, 1994, further clarified in a press release, stating that no proof of investment is necessary for gold within the prescribed limits.
The above circular also states that gold jewellery and accessories are exempt from seizure if:
- The taxpayer has declared such gold jewellery and ornaments in his wealth tax return or
- The gold jewellery and ornaments are up to the prescribed limits or
- The taxpayers offer a valid explanation on the legitimate source of the income from which gold has been obtained or
- The tax officer conducting the search also has the discretion to refrain from seizing even higher quantities of gold jewellery based on factors such as family customs and traditions.
If found during a search, gold that does not meet any of the above criteria would be liable to confiscation by the tax authorities.
Tax Implications on Seizure of Gold
When such gold jewellery and ornaments are seized, the assessee must explain the legitimacy and source of income for making such investments along with the proof of making such investment, such as:
- A tax invoice for the purchase of gold or
- Transaction representing the transfer of money through recognised banking channels;
- In the case of inheritance, it can be an original invoice in the name of the first recipient, a will or family settlement agreement, or
- In the case of a gift, it can be an original invoice in the donor's name or a gift deed.
If the assessee fails to offer an explanation or the reason provided is not satisfactory, the amount of such gold is taxable at the stipulated rate of 60% + 25% surcharge plus a 4% cess, making the tax rate 78%. Additionally, a 10% penalty is also payable over and above such tax.
Income Tax on Gold Jewellery/Bullion/Gold ETFs/ Gold MFs Received as a Gift
If you receive gold jewellery/bullion/Gold ETFs/Gold MFs as a gift, the entire market value of gold received is taxable if it exceeds Rs 50,000 in a year. Based on your income bracket, it is taxed at slab rates under the heading 'Income from other sources'.
Nonetheless, the Act grants tax exemptions in the following circ*mstances where the gift will not be taxable:
- If the total amount of gold you get as a gift in a year does not exceed Rs 50,000 or
- If the gifts come from the family listed below:
- Spouse - Brother or sister of your/your spouse
- Your/your spouse's ancestor or descendent (e.g. children, parents, grandparents, etc.) - Gold received on the occasion of your marriage
- Gold inherited under a will
Income Tax on Sale of Gold
Sale of gold jewellery/bullion/Gold ETFs/ Gold MFs is taxable under the head ‘Capital gains’ as under;
Particulars | Short Term | Long Term |
Period of Holding | 36 months or less | More than 36 months |
Tax Rate | Slab Rate | 20% + Surcharge + 4% cess |
Is indexation Available? | No | Yes |
Computation of Capital Gains | Sales Price less Cost of Acquisition less transaction cost | Sales Price less Indexed Cost of Acquisition less transaction cost |
If gold is acquired before January 1, 2001, the Cost of Acquisition of such gold will be higher of (i) the Actual Cost of acquisition of gold or (ii) the Fair market value of gold as of January 1, 2001.
GST on Purchase of Gold
GST is levied at 3% on gold purchases and 5% on making charges for the gold ornaments.
If you trade gold (say, bars or coins) for new jewellery, no GST is imposed up to the weight of the gold swapped. Just the value of excess weight is subject to GST.
However, no GST would be levied on the sale of gold by individuals. For details refer article.
How to Save Tax on LTCG Arising on the Sale of Gold?
Section 54F of the Act exempts individuals from paying tax on the LTCG if the entire sale proceeds are invested in acquiring a residential property. To qualify for the exemption, the house property must be purchased either one year before or two years after the date of the gold sale, and in case of construction, the building must be finished within three years of the date of the gold sale.
Further requirements for receiving the exemption include:
- You should not own more than one residential house other than the new one purchased on the day of the sale of gold.
- You shall not buy or build more than one new residential house before the time limit.
- If the new house is sold within three years of its acquisition or construction, the previously exempted capital gain on the sale of gold will now be taxable in the year the new house is sold.
- If the entire proceeds from the sale of gold are not used to purchase a new residential property, then only the proportionate exemption is available, which can be computed as:
Amount of capital gain x Amount utilised for purchase of new residential property / Sale proceeds from sale of gold
What Proof is Valid for Supporting the Possession of Gold?
Proof of investment will help you establish the source of the investment against your income tax return. Apart from the tax invoices you would keep, you may wonder what proof is necessary in case of inheritance and gifts. In the case of inheritance or gift, please provide a receipt in the name of the initial owner of the item.
Alternatively, you can also submit a family settlement deed, will, or gift deed stating the transfer of such commodity to you. On the other hand, if no such document is available, the officer will analyse your family’s social status, customs, and traditions to conclude whether your statement is valid.
Gold Limit for Joint Locker
The quantity mentioned above is applicable to individual taxpayers. When it comes to a single locker having jewels from multiple families, the limit will be an aggregate of each individual taxpayer. In this case, it is recommended to open joint locker accounts with the names of the taxpayers from each family.
Related Articles
Capital Gains Tax
Long-term capital gains
Short-term capital gain
Tax on Long-term Capital Gains on Equity Funds
Short Term Capital Gain on Shares
Capital Gains Exemption
Section 54F
