Tax on Gold Jewellery Holdings - How Much Gold Can I Hold?

Gold is considered as a capital asset in India, and its sale is considered for capital gains taxation purposes. Though the Income Tax Act does not mention gold holding limits anywhere, it was prescribed in a search guideline issued by the CBDT that there are recommended limits of gold holding by a normal taxpayer. For unmarried woman, the prescribed gold holding limit is 250 grams, whereas it is 500 grams for married woman and 100 grams for children respectively.

If the gold holding crosses the prescribed limits, it is recommended to keep an accurate record of source of income using which gold is purchased.

This article explains in detail, the gold holding limits, and tax implications on sale of gold along with exemption options available.

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 gold jewellery and ornaments that different persons can hold without requiring to explain the source of such gold:

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 Sale of Gold

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

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.

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 circumstances 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:
  • Parents and Siblings
  • Spouse - Brother or sister of your spouse
  • Your/your spouse's ancestor or descendent (e.g. children, parents, grandparents, etc.)
• Gold received on your marriage
• Gold inherited under a will 

LTCG Exemption On Sale Of Gold

• As we have already discussed, sale of gold attracts capital gains tax. 
• However, you can claim exemption on long term capital gains on sale of gold under section 54F.
• You can claim exemption under section 54F on purchase or construction of resident property using the sale proceeds of gold.
• 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:

Exempt Capital Gain = Amount of Capital Gain  x Amount utilized for purchase of new residential property / Sale proceeds from sale of gold

Also, exemption can be claimed under Section 54EC which requires the taxpayer to invest the capital gains in government bonds such as NHAI, REC and PFC bonds. The maximum limit is Rs. 50 lakhs. 

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. 
• Family settlement deed, will, or gift deed stating the transfer of such commodity to you are also reliable supportings for gold possession. 
• 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.

Precautions To Protect Your Gold

• Maintain Proper Documentation:

1. Always keep receipts and invoices on your gold acquisitions, particularly high-value items.
2. Keep track of gold sales, gifts, and inheritances.
3. Save soft copies of such documents in a secure place.

• Understand Taxes :

1. Discover about capital gains tax on gold in India. Gold sold within two years is taxed differently compared to gold held for more than that.
2. Know about gift tax rules for expensive gifts of gold and exemptions for relatives.
3. Verify inheritance tax rules for gold inherited from a relative.

• Obey The Law : 

1. Stay current with Indian tax legislation and regulations regarding gold.
2. Purchase gold in India via lawful Platforms at all times.
3. Report gold at customs during international travel to minimize penalties. 

Related Articles

Short-term capital gain

Tax on Long-term Capital Gains on Equity Funds

Short Term Capital Gain on Shares

Conclusion: 

Understanding gold ownership-related income tax rules is important in order to stay in compliance and open about your financial dealings. You should maintain updates on changes to regulations and discuss the situation with financial specialists in order to find the best accurate and timely information on gold ownership and the related income tax aspects. Additionally, you can shield your gold investment by recording information clearly, having secure storage options, and reviewing various forms of gold like online platforms and government bonds.