Under the Income-tax Act, 1961, Originally jewellery was treated as personal effects (you can simply understand personal effects as movable property of any kind for personal use of the assessee or any member of family of the assessee dependent on him) like other personal effects (e.g. cars, furnitures, wearing apparels, mobiles, televisions etc.) therefore there was no capital gain tax on transfer of jewellery but Finance Act, 1972 excluded jewellery from personal effect therefore treated as capital asset. Reasoning for taxing capital gain arising from transfer of jewellery was that the exemption of capital gain arising from transfer of jewellery facilitates tax evasion through bogus or inflated claims of sale of jewellery for explaining moneys introduced in business however genuine or bonafide transfer of jewellery was provided relief through section 54C (inserted through Finance Act, 1972) but later on this section 54C also got omitted from the Income-tax Act, 1961 on reasoning that money gets invested in unproductive asset i.e. jewellery and this is not Government’s intention therefore Government withdrew this section 54C exemption though there are other sections (54 series sections) under Income-tax Act, 1961 where you can claim exemption by investing capital gain or net consideration amount in other asset not being jewellery.
Generally when you buy jewellery and in later years you sell it then generally you make profit that is how legislature taxed transfer of jewellery but if you take case of other personal effects like furniture, car, television, fridge, mobile etc. then generally you incur loss on sale of these personal effects that is why legislature kept these assets as personal effects (except excluding part) which are not treated as capital assets.
You can refer section 2(14) of the Income-tax Act, 1961 for definiton of capital assets
Section 54C- Capital gain on transfer of jewellery held for personal use not to be charged in certain cases
Where the capital gain arises from the transfer of a capital asset, being jewellery held for personal use by the assessee or any member of his family dependent on him, and the assessee has, within a period of six months after such transfer, acquired any other jewellery for personal use by the assessee or any member of his family dependent on him, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—
(i) if the cost of the jewellery so acquired is not less than the full value of the consideration received or accruing in respect of the transferred jewellery, the whole of such capital gain shall not be charged under section 45 ; or
(ii) if the cost of jewellery so acquired is less than the full value of the consideration received or accruing in respect of the transferred jewellery, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the jewellery so acquired bears to the full value of the consideration received or accruing in respect of the transferred jewellery shall not be charged under section 45.
Explanation : For the purposes of this section, “jewellery” shall have the same meaning as is assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2.]
Relevant extract of Memorandum explaining the provisions in Finance Bill, 1972
40. Withdrawal of exempt in respect of capital gains arising from transfer of personal jewellery
Under the provisions of the Income-tax Act, any profits or gains arising from the transfer of a “capital asset” as defined in the Income-tax Act, does not include, inter alia, personal effects, i.e., movable property including wearing apparel, jewellery and furniture held for personal use by the assessee or any member of his family dependent on him. In view of the specific exclusion of jewellery from the transfer of jewellery held for personal use are not chargeable to income-tax. The exemption of capital gains arising from transfer of jewellery facilitates tax evasion through bogus or inflated claims of sale of jewellery for explaining moneys introduced in business. It is , therefore, proposed to diwthdraw this exemption and to charge capital gains arising from the transfer of personal jewellery on the same basis as capital gains relating to assets other than lands or buildings. The term “jewellery” is being given the same extended meaning as has been given to it under the Wealth-tax Act and will, therefore, include –(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-prescious metals, whether or not workded or sewn into any waring apprel; (b) precious or semi-precious stone, whether or not set in any furniture, utensil or other article and whether or not worked or sewn into any wearing apparel. As it is not intended to levy any tax on capital gains arising from bona fide transfer of jewellery made for the purpose of acquiring any other jewellery for personal use, it has been specifically provided that where jewellery is acquired within six months of the transfer, any profit and gains arising from the transfer will not be liable to tax if the whole of the full value of the consideration is spent in acquiring the new jewellery. Where only a part of this consideration is used in acquiring new jewellery, a proportionate part of capital gain will not be liable to tax.
41. These amendments take effect from 1st April, 1973, and will, therefore, apply in relation to assessment year 1973-74 and subsequent years. [Clauses 3(a), 8 and 9]
Relevant extracts of Memorandum explaining the provisions in Finance Bill, 1976
47. Withdrawal of exemption in respect of capital gains arising from transfer of personal jewellery in certain cases.- Capital gains arising from the transfer of personal jewellery are exempted from tax if whole of the full value of the consideration received for the transfer of the jewellery is utlised in acquiring new jewellery within six months of the transfer. Where only a part of this consideration is used in acquiring new jewellery, a proportionate part of capital gains is exempted from tax. The exemption is not in conformity with Governments’s objective of channelizing investment from unproductive to productive assets. The Bill accordingly seek to withdraw this exemption
48. The proposed amendment will take effect from 1st April 1976 and will, therefore apply in relation to assessment year 1976-77 and subsequent years. [Clause 12 and 26(a)]
Author Bio
