Tax on Gold Jewellery Holdings - How much GOLD can I hold?

People purchase gold for various reasons, may it be for auspicious occasions or for the love of wearing ornaments. On the other hand, gold also seems to be a favourite investment option for many people given the fact that there is no restriction on how much gold an individual can hold. Here, gold does not only mean jewellery, but it also includes gold coins, gold bars, and other forms.

You may be plagued with different questions about investing in gold. Is investment in gold safe? 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 in view of the government’s recent thrust on tracking unaccounted monies and investments. Read on to know more details.

What are the limits for holding gold jewellery and ornaments?

The first point to emphasise is that there is no restriction on possessing gold jewellery or ornaments provided they were obtained from the source of income specified. The CBDT issued a circular on May 11, 1994, which was further clarified in a press release, stating that no proof of investment is necessary for gold possessed within the authorised limits.

The above circular states that gold jewellery and accessories are exempt from seizure if:

• The assesses under investigation have declared such gold jewellery and ornaments in his wealth tax return.
• If an assessee is not subject to wealth tax, gold jewellery and ornaments up to the prescribed limitations will not be confiscated.
• Just the excess of the gross weight of gold jewellery and decorations not stated in the wealth tax return would be confiscated if the assessee is assessed to wealth tax.

When such gold jewellery and ornaments are seized, the assessee must explain the source of income for making such investments. If the assessee fails to offer an explanation or the reason provided is insufficient, the amount is taxable under section 69B at the rate prescribed in section 115BBE of the Act. The stipulated rate is 60% + a 25% fee. Add a 4% HEC and a 10% penalty on such tax.

The prescribed limit on the quantity of jewellery and ornaments that different persons can hold is as under:

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.

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 INR 50,000. It is taxed at slab rates under the heading 'Income from other sources' based on your income bracket.

Nonetheless, the Act grants tax exemptions in certain circumstances:

• If the total amount of gifts you get in a year does not exceed Rs 50,000
• 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.)
• Gifts received from friends or relatives on the occasion of your marriage
• Any asset inherited as an inheritance under a will or other applicable succession legislation

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 imposed again 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.

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;

• 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)

How to save tax on LTCG arising on the sale of gold?

Section 54F of the Act exempts individuals and Hindu Undivided Families (HUFs) from paying tax on the aforementioned LTCG if the entire sale profits are invested in acquiring residential home 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 the building must be finished within three years of the date of the gold sale.

Further requirements for receiving the exemption include:

• You do not own more than one residential house, other than the new one purchased on the day of the sale.
• You shall not buy or build more than one new residential house before the time limit indicated above.
• If the new house is sold within three years of its acquisition or construction, the previously excluded 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 home, the proportionate exemption is available, which can be computed as:

What proof is valid

Proof of investment will help you in establishing the source of the investment against your income tax return. Apart from the tax invoices that you would keep, you may wonder what kind of proof is necessary in case of inheritance and gifts. In the case of inheritance or gift, it will be great if you can 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 there is no such document available, the officer will analyse your family’s social status, customs, and traditions to come to a conclusion on whether your statement is valid or not.

Precautions necessary

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. This way you can avoid confusion.

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