Tax on Gold in India & Limit of Holding [2019-20]

Tax on Gold in India

Gold is another kind of asset which is taxable in the form of Capital gain on sale of Gold, In this article, we’ll clear all your question and raise your knowledge related to gold for the individual or household & what is the Tax on Gold in India of sale/Purchase and holding of Gold in different forms.

Before diving in, We will understand the forms of Gold.

  • Jewelry
  • Gold Bars
  • Coins (Gold)
  • Gold Biscuits
  • ETF’s Bond

So start from the beginning, if we talk about the individual, how can you get any form of gold in your portfolio.

  • Purchase of gold (any form)
  • If you get the gold as a gift.
  • Inherited jewelry

Holding period of Gold/Silver in any form more than 24 months/ 2 years and sell after it Long term capital gain comes into play & if sell it before 24 months/ 2 years short term capital gain calculation is required.

Levied of capital gains tax on gold are different considering a different scenario in hand.

Income tax on Gold Jewellery

If an individual buys gold in the form of jewelry, gold bar/biscuits or gold coins are subject to income tax on gold jewellery if you decide to sell the gold in profit.

Holding Gold is considered as capital assets.

In both the scenarios the tax is imposed only on the capital gain amount, not on the sales price.

What is Indexed acquisition cost – Indexation acquisition cost is the purchase cost which is calculated after indexation, Cost Inflation Index (CII) is used for calculating the estimated increase in the prices of goods and assets year-by-year due to inflation.

How and why CCI important for calculating capital gain tax on the Gold sale.

For the calculation purpose of Long term capital gain tax, the formulae required the index value which was declared by the government of India after putting the value the exact value comes out.

Also Read: – Capital Gains Sale of Agricultural Land

GST Tax on Gold buying in India

Everybody purchase gold in this life once, There is two tax scenario while buying the gold. GST Tax on Gold and GST tax on making charges. 

So How it works.

# If you get sellers bill which doesn’t reveal separate amount (Gold value and making charges).

If the seller billed a single bill with no separately gold and making charges In such a situation, you have to pay 3% GST on the total billed amount.

For Example

You purchase gold worth Rs 2,00,000 Jewellery shop owner not billing you separately for gold and making charges, So you have to pay GST @ 3% on the total cost.

# If you get sellers bill which reveals separate amount (Gold value and making charges).

If the seller billed a single bill with separately gold and making charges In such a situation, you have to pay 3% GST on gold portion and 5% GST on making charges amount.

For Example

You purchase gold worth Rs 2,00,000 (1,7000 Gold cost + 30,000 making charges) Jewellery shop owner billing you separately for gold and making charges, So you have to pay GST @ 3% on the gold cost and 5% on making charges.

# When you sell your gold to Jewellery Shop owner and buy the new gold

Most of the housewives use to exchange their broken gold pieces to their nearest jewelry shop, eventually, most of us wondering of the capital gain on exchange of jewellery, they need not pay the tax on the amount of jewelry you sold to shop. However, the gold you purchase against the exchange, the above rules of GST is applicable.

# When you sell your gold in the Jewellery Shop owner but not buy anything

This transaction doesn’t fail under any GST category.

# When you own a raw gold and convert it in ornament from the jewelry shop

In this scenario, you are not buying any gold. However, there is making charges which shop owner charges you to make a new gold ornament. Hence, the applicable GST on such making charges is 18%.

How to calculate capital gain on Sale of purchase Gold

Calculation of capital gain on sale of gold is easy to understand, there is some additional information when you calculate Capital Gain Tax on Sale of House Property but in this scenario, it is very amicable.

Formula for long term capital gain for GOLD

Long Term Capital Gain Tax = Sales Price (-) Indexed Cost of acquisition

Let’s understand the whole scenario with an example:

  • Long-term capital gain= Full value consideration.
  • (-) Indexed cost of acquisition.
  • Finally Long term capital gain Tax on the Profit amount.

There are two scenarios for long term capital gain:

# If you have purchased before 01/04/2001 – You can opt for FMV as on 01/04/2001 or Purchase Price.

# If you have purchased after 01/04/2001 – You have to take your purchase price for calculation.

Formula for Short term capital gain for GOLD

The Only difference between the calculation of LTCG and STCG is the period of keeping your property in hand.

Short Term Capital Gain Tax = Sales Price (-) Cost of acquisition

Let’s understand the whole scenario with an example:

  • Long-term capital gain= Full value consideration.
  • (-) cost of acquisition.
  • Finally Short term capital gain Tax on the Profit amount.

Indexed Cost of acquisition is calculated by = Actual cost of Purchase * CII for Year of Sale/ CII for Year of Purchase

Which ITR Form required to disclose capital gain on Gold

As far as ITR form discloser is concern, three scenario pop up:

  • Purchase of Gold in any form – Discloser in any ITR form is not mandatory.
  • Gold received as Gift or inherited.
  • Sales of Gold under Capital Gain.

Individuals with income from salary and capital gains are required to file ITR-2, Even if your Capital Gain is exempted you have to disclose mentioning the details under Schedule EI.

Where to show gifts in ITR?

If you receive the gifted Gold which is taxable (in other words gift gold received from a relative which are not exempted) you have to show the income under “Income from Other sources” and taxable under tax slab.

However, if you get gold through a registered gift deed or by will, you can show the value of the gift received as ‘Exempted Income‘ in ITR form just to avoid future correspondence with the Income-tax department.

Also Read: – Capital Gain Tax on Sale of House Property

Is there a limit for physical gold you can own in India

It is true that if an individual is truly honest, but one’s image can get sullied if there is an income tax raid at one’s premises.

According to CBDT circular if, there are no worries about holding gold ornaments if you can disclose the sources of your investment in Gold.

So back to the question~

Maximum Limit of Holding Gold

According to the circular, there is no limit defined for holding physical gold, If you acquire the gold from explained source including inheritance source, then there is no limit.

It is advisable to keep the documentation proof if you purchase or received from an inheritance source like Will or written documentation proof.

However, your ITR should correspond to the amount of holding.

Unable to Explain the source of Gold What happens?

The circular reveals the number of gold ornaments to the extent of the below limit will not be sized.

  • 500 grams for married lady
  • 250 grams for unmarried lady and
  • 100 grams for the male member

Note:- The above quantity of Gold includes the purchase and inherent gold, Even if you can’t present the documentation proving that quantity will not be sized, It does not include Gold coins and bars, in case the limit quantity includes coins and bars, the raid team can size the quantity.

What happens if the above limit exceed

However, if you can explain the source of gold and also have all the documentation evidence, the officer in charge will not size the gold demanding on the facts.

Sometimes the Gold in your possession includes the gold of your relative or friend or somebody else, in that case, the above limit doesn’t include and the material will be sized.   

Tax exemptions on long term capital gains from the sale of gold

Gold is a commodity which involves huge amount of investment and profit, on the other hand, the tax slab trim your profit by 20% LTCG tax. The Government of India provides exemptions under certain specific terms if you reinvest the amount under sections.

Income Tax Act provides tax exemptions on long term capital gain from the sale of gold assets under Section 54EC and section 54F.

Tax Exemption under Section 54EC

Section 54EC allows the taxpayer to save their LTCG tax if you reinvest the amount in specific bonds issued by NHAI, REC, NHB and other specified public sector entities under Section 54EC.

  • The maximum amount invested is Rs 50 Lakhs
  • Must invest within Six months of the transaction.
  • The Lock-in Period is 5 Years of investment.

Tax Exemption available under Section 54F

Section 54F is another option for exemption from capital gains tax arising from the sale of gold if you invest the sale proceeds in residential property as specified under section 54F.

You can claim the deduction on one residential property that is bought within 1 year before or 2 years after the sale of gold assets or for construction of one residential property within 3 years from the date of transfer.

Capital gain on sale of Inherited Jewelry

Sale of gold is eligible for income tax and not all of the sale proceeds. The profits made are termed as “capital gains” and come under the “Income from capital gains” category in the Income Tax Returns form.

If you are planning to sell your inherited jewelry, the calculation formulae for the gold tax is similar.

  • Short Term Capital Gain Tax = Sales Price (-) Cost of acquisition
  • Long Term Capital Gain Tax = Sales Price (-) Indexed Cost of acquisition

Sale price is fixed, but if we talk about the purchase price of inherited gold you are talking about the price of your ancestor (who made the purchase).

If inherited before 1 April 2001, you can use the Fair Market Value (FMV) as on 1 April 2001 or the price at which it was purchased by the previous owner. If inherited after 1 April 2001, the cost of purchase of the previous owner is the cost of the purchase price.

Point to Remember: Gifted jewelry is also known as an inherited asset.

Exemption:

If the recipient receives gold jewelry under certain specified condition from relative like (marriage gift, under a will or by way of inheritance, or in contemplation of death of payer, etc.) The property is exempted by Law.

Relative: Spouse, brother or sister, brother or sister of the spouse, brother or sister of either of the parents.

Point to Remember: What is ancestral asset? Ancestral asset is acquired by your grandfather which has been passed down from generation to generation up to the present generation (you) without being divided or partitioned by the family.

Is Gold jewelry & gold bars/biscuits are as similar in Tax – The Answer is Yes.

Also Read: – Capital Gains Tax on Shares

Gold Monetisation Scheme Bond

The Government introduced a gold monetization scheme for individuals and institutions for giving them as an opportunity is ever some money in the form of interest from there ideal gold lying in their house.

Every Indian housewife is the best example of ideal gold.

How it works

The scheme can be availed at banks, where customers can deposit their gold in return for interest between 2.25 to 2.50 percent.

The best part of the scheme is that interest earned and capital gains made from this scheme is completely exempted.

Any form of physical gold is excepted by the bank under this scheme however, jewelry with embedded stones will not be accepted.

There is no upper limit for the quantity deposited. The minimum deposit limit is 30 grams of 99.5 percent purity.

The time period between 1 year to 15 years, On or before maturity if you what to withdraw the gold, you will get your gold back in the form of bars, coins of the equivalent amount, because the bank uses your deposit gold and change the form accordingly.

Note:- Interest Income and Capital gain under the scheme is totally exempted. 

Capital Gain Tax on Gold Exchange Traded Funds (Gold ETF)

Gold Exchange-traded fund (ETF) representing physical gold in the form of paper or Demat. The Gold ETF units are traded in the stock exchanges. The holder can buy or sell, and you must have a Demat account.

The taxation protocol is similar to that of Gold Jewellery. So, if you sold gold ETFs at a profit after three years, the long term capital gains tax (LTCG) of 20 % with indexation becomes applicable.

Capital Gain Tax on Sovereign Gold Bond

The Government of India, issue a sovereign gold bond, which provides a specific interest rate to the investor along with capital gain when you redeem it.

The holding time period of the bond is 8 years. However, you can also redeem the gold bond after 5 years of completion.

  • It can purchase from various post offices and public as well as private sector Banks.
  • The market price is considered the day you redeem your bond.
  • The minimum investment allowed is 2 grams to 500 grams every financial year.
  • On maturity, the capital gain is totally tax-free.
  • On the other hand, if the gold bond is sold before maturity entire amount is taxable.

How Let’s see one by one

# Interest Income from Gold Bond – The interest income will be taxable income, you have to show under the head of “Income from Other Sources” and have to pay the tax.

# Capital Gain Exemption As discussed above after holding gold bond for 5 years you can redeem any time the profit earned is capital gain, Such capital gain arising due to redemption by an individual is exempted from tax.

# Selling of Gold bond before maturity in Stock Exchange – It is very clear if you sell before maturity it’s entirely taxable.

Hence, if you sold the bonds in the secondary market before maturity, then there will be two possibilities.

  • If you sell the bonds within 3 (three) years and if there is any capital gain, such capital gain will be taxed as per your tax slab. – It is treated as STCG.
  • If you sell the bonds after 3 (three) years but before maturity, then such capital gain will be taxed at 20% with indexation. – It is treated as LTCG with indexation.

Capital Gain Tax on Sale of Silver

Silver (another commodity a cheaper one) is very affordable when compared to gold and is found in almost every household in India.

Sale of silver ornament/jewelry which was held for more than 24 months, then it will be treated as a long term capital gain and you can avail the benefit of indexation.

The long term capital gain is charged at 20%. If you sell silver that you have held for less than 24 months, then it will be treated as short term capital gain is the short term capital gain is charged under your tax slab.

Tax on Gold in India (Summarized Detail)

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