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Budget 2023-  Conversion of Gold to Electronic Gold Receipt and vice versa

Pursuant to the announcement in the Union Budget 2021-22 about Gold Exchange, SEBI has been made the regulator of the entire ecosystem of the proposed gold exchange. Accordingly, SEBI has come out with a detailed regulatory framework for spot trading in gold on existing stock exchanges through the instrument of Electronic Gold Receipts (EGR).

2. In order to promote the concept of Electronic Gold, it is proposed to exclude the conversion of physical form of gold into EGR and vice versa by a SEBI registered Vault Manager from the purview of ‘transfer’ for the purposes of Capital gains

3. It is also proposed that the cost of acquisition of the EGR for the purpose of computing capital gains shall be deemed to be the cost of gold in the hands of the person in whose name Electronic Gold Receipt is issued, and the holding period for the purpose of capital gains, would include the period for which gold was held by the assessee prior to its conversion into EGR. Similarly, provision for conversion from gold to EGR is also proposed.

4. For the above changes following amendments are proposed to be made:

i. To insert a new clause in section 47 of the Act so as to provide that any transfer of a capital asset, being physical gold to the Electronic Gold Receipt issued by a Vault Manager or such Electronic Gold Receipt to physical gold shall not be considered as ‘transfer’.

ii. For the purposes of this newly inserted clause, the expressions ‘Electronic Gold Receipt’ and ‘Vault Manager’ shall have the meanings respectively assigned to them in clauses (h) and (l) of sub-regulation (1) of regulation 2 of Securities and Exchange Board of India (Vault Managers) Regulations, 2021.

iii. To insert a new sub-section (10) to section 49 of the Act to provide that where an Electronic Gold Receipt issued by a Vault Manager, became the property of the person as consideration of a transfer, as referred in the newly inserted clause in section 47, the cost of acquisition of the asset for the purpose of the said transfer, shall be deemed to be the cost of gold in the hands of the person in whose name Electronic Gold Receipt is issued. Similarly, where the gold released against an Electronic Gold Receipt, which became the property of the person as consideration for a transfer, as referred in the newly inserted clause in section 47, the cost of acquisition of the asset (being gold) for the purposes of the said transfer shall be deemed to be the cost of the Electronic Gold Receipt in the hands of such person.

iv. To insert a new clause (hi) to Explanation 1 of sub-section (42A) of section 2 of the Act to provide that the holding period for the purpose of capital gain shall include the period for which the Gold was held by the assessee prior to conversion into the Electronic Gold Receipt.

v. To insert a new clause (hi) in Explanation 1 of sub-section (42A) of section 2 of the Act to provide that the holding period for the purpose of capital gain shall include the period for which the Gold was held by the assessee prior to conversion into the Electronic Gold Receipt and similarly the holding period for the purpose of capital gain shall include the period for which the Electronic Gold Receipt was held by the assessee prior to conversion into the Gold.

5. These amendments will take effect from the 1st day of April, 2024 and shall accordingly, apply in relation to the assessment year 2024-25 and subsequent assessment years.

[Clauses 3, 21, 23]

Extract of relevant clause of Finance Bill 2023

Clause 3 of the Bill seeks to amend section 2 of the Income-tax Act relating to definitions.

It is proposed to amend clause (19B) of the said section to omit “Additional Commissioner of Income-tax (Appeals)” from the definition.

This amendment will take effect from 1st April, 2023.

Clause (24) of the said section provides definition of income for the purposes of the Act.

It is further proposed to insert a new sub-clause (xviic) in clause (24) of the said section to provide that any sum referred to in clause (xii) of sub-section (2) of section 56 shall also be included within the definition of income.

It is also proposed to insert sub-clause (xviid) in the said clause so as to provide that income shall include any sum referred to in clause (xiii) of sub-section (2) of section 56.

These amendments will take effect from 1st April, 2024 and will, accordingly, apply in relation to the assessment year 2024-2025 and subsequent assessment years.

It is also proposed to insert a new clause (28CA) to provide for definition of “Joint Commissioner (Appeals)” to mean a person appointed to be a Joint Commissioner of Income-tax (Appeals) or an Additional Commissioner of Income-tax (Appeals) under sub­section (1) of section 117.

This amendment will take effect from 1st April, 2023.

Clause (42A) of the said section defines “short-term capital asset” and the Explanation 1 of the said clause provides for determining the period for which any capital asset is held by the assessee.

It is proposed to insert a new sub-clause (hi) in clause (i) to the Explanation 1 of the said clause so as to provide that in the case of capital asset, being Electronic Gold Receipt or gold being capital asset, the holding period for the purpose of capital gain shall include the period for which the gold or Electronic Gold Receipt, was held by the assessee prior to conversion into Electronic Gold Receipt or gold, as the case may be.

This amendment will take effect from 1st April, 2024 and will, accordingly, apply in relation to the assessment year 2024-2025 and subsequent assessment years.

Clause 21 of the Bill seeks to amend section 47 of the Income-tax Act relating to transactions not regarded as transfers.

Clause (b) of the Explanation to clause (viiad) of the said section defines the term “relocation” as transfer of assets of the original fund, or of its wholly owned special purpose vehicle, to a resultant fund on or before the 31st day of March, 2023, where consideration for such transfer is discharged in the form of share or unit or interest in the resulting fund in the manner specified therein.

It is proposed to extend the said date for transfer of assets of the original fund, or of its wholly owned special purpose vehicle, to a resultant fund in case of relocation from 31st March, 2023 to 31st March, 2025.

It is further proposed to amend sub-clause (i) of clause (b) of the said Explanation to clause (viiad) to give reference of the International Financial Services Centres Authority (Fund Management) Regulations, 2022 in the definition of “resultant fund” of section 47 of the Act.

These amendments will take effect from 1st April, 2023 and, will, accordingly apply in relation to the assessment year 2023-2024 and subsequent assessment years.

It is proposed to insert a new clause (viid) in the said section so as to include conversion of gold into Electronic Gold Receipt or Electronic Gold Receipt into gold which shall not be regarded as transfer for the purposes of the said section.

It is further proposed to define the expressions “Electronic Gold Receipt” and “Vault Manager” to mean Electronic Gold Receipt and Vault Manager defined respectively in clauses (h) and (l) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Vault Managers) Regulations, 2021.

This amendment will take effect from 1st April, 2024 and will, accordingly, apply in relation to the assessment year 2024-2025 and subsequent assessment years.

Clause 23 of the Bill seeks to amend section 49 of the Income-tax Act relating to cost with reference to certain modes of acquisition.

It is proposed to insert a new sub-section (10) so as to provide that the cost of acquisition of Electronic Gold Receipt for the purpose of computing capital gain shall be deemed to be the cost of gold in the hands of the person in whose name Electronic Gold Receipt is issued.

It is further proposed that the cost of acquisition of gold for the purpose of computing capital gain shall be deemed to be the cost of Electronic Gold Receipt in the hands of such person.

This amendment will take effect from 1st April, 2024 and will, accordingly, apply in relation to the assessment year 2024-2025 and subsequent assessment years.

Conversion of Gold to Electronic Gold

Extract of Relevant Amendment Proposed by Finance Bill, 2023

3. Amendment of section 2.

In section 2 of the Income-tax Act,–

(a) in clause (19B), the words and brackets “or an Additional Commissioner of Income-tax (Appeals)” shall be omitted;

(b) in clause (24), after sub-clause (xviib), the following sub-clauses shall be inserted with effect from the 1st day of April, 2024, namely:–

“(xviic) any sum referred to in clause (xii) of sub­section (2) of section 56;”;

“(xviid) any sum referred to in clause (xiii) of sub­section (2) of section 56;”;

(c) after clause (28C), the following clause shall be inserted, namely:–

‘(28CA) “Joint Commissioner (Appeals)” means a person appointed to be a Joint Commissioner of Income-tax (Appeals) or an Additional Commissioner of Income-tax (Appeals) under sub-section (1) of section 117;’;

(d) in clause (42A), in Explanation 1, in clause (i), after sub-clause (hh), the following sub-clause shall be inserted with effect from the 1st day of April, 2024, namely:–

“(hi) in the case of a capital asset, being–

(a) Electronic Gold Receipt issued in respect of gold deposited as referred to in clause (viid) of section 47, there shall be included the period for which such gold was held by the assessee prior to conversion into the Electronic Gold Receipt;

(b) gold released in respect of an Electronic Gold Receipt as referred to in clause (viid) of section 47, there shall be included the period for which such Electronic Gold Receipt was held by the assessee prior to its conversion into gold.”.

21. Amendment of section 47.

In section 47 of the Income-tax Act,–

(a) in clause (viiad), in the Explanation,–

(i) in clause (b), for the figures “2023”, the figures “2025” shall be substituted;

(iii) in clause (c), in sub-clause (i), after the words and figures “Securities and Exchange Board of India Act, 1992 or”, the words, brackets and figures “regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022, made under the” shall be inserted;
15 of 1992.

(b) after clause (viic), the following clause shall be inserted with effect from the 1st day of April, 2024, namely:––

‘(viid) any transfer of a capital asset, being conversion of gold into Electronic Gold Receipt issued by a Vault Manager, or conversion of Electronic Gold Receipt into gold.

Explanation.—For the purposes of this clause, the expressions “Electronic Gold Receipt” and “Vault Manager” shall have the meanings respectively assigned to them in clauses (h) and (l) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Vault Managers) Regulations, 2021 made under the Securities and Exchange Board of India Act, 1992.’. 15 of 1992.

23. Amendment of section 49.

In section 49 of the Income-tax Act, after sub-section (9), the following sub-section shall be inserted with effect from the 1st day of April, 2024, namely:–

“(10) Where the capital asset, being–

(i) an Electronic Gold Receipt issued by a Vault Manager, became the property of the person as consideration of a transfer, referred to in clause (viid) of section 47, the cost of acquisition of the asset for the purposes of the said transfer, shall be deemed to be the cost of gold in the hands of the person in whose name Electronic Gold Receipt is issued;

(ii) gold released against an Electronic Gold Receipt, which became the property of the person as consideration for a transfer, referred to in clause (viid) of section 47, the cost of acquisition of the asset for the purposes of the said transfer shall be deemed to be the cost of the Electronic Gold Receipt in the hands of such person.”.

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Source : Finance Bill 2023 / Union Budget 2023

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