Income tax on Selling gold

Income Tax Act of India specifies that profit from sale of gold bars, jewelry, coins or utensils or any other form of precious metal will attract tax under capital gains. The profit on sale of your gold holding is taxable under the head “Capital Gains” of Income Tax. Only exception to this is in case of gold dealers who transact in gold as a part of their business, where profit on such transactions is taxable under the head “Income from business or profession”.

Source of gold investment

While buying gold, it is necessary that you take and retain your tax invoices for the purchase, be it jewellery or bullion. The Central Board of Direct Taxes (CBDT) has specified in its press release, dated 1 December, 2016 that there is no limit on holding gold jewellery provided that the source of investment or inheritance can be explained.

However, it is essential that income of the assessee is in line with the quantity of gold held. Providing necessary proof for such possession will help in avoiding scrutiny from the income tax department. Otherwise, the assessing officer also holds the authority to confiscate the gold held.

CBDT’s PRESS RELEASE dated 01.12.2016

Subject : Clarifications with respect to Gold Jewellery under Income Tax Law

In order to remove any doubt about the current position of Income Tax Law with respect to gold jewellery, the following points are categorically clarified:

There is no limit on holding of gold jewellery or ornaments by anybody provided it is acquired from explained sources of income including inheritance

Vide circular dated 11.5.1994, instructions have been issued in the matter of search and seizure of gold jewellery. Jewellery and ornaments to the extent of 500 gms for married lady, 250 gms. for unmarried lady and 100 gm for male member will not be seized, even if prima facie, it does not seem to be matching with the income record of the assesse.

Officer conducting search has discretion not to seize even higher quantity of gold jewellery based on factors including family customs and traditions.

(Meenakshi J. Goswami)

Commissioner of Income Tax

(Media and Technical Policy)

Official Spokesperson, CBDT.

Valid proof of Investment in Jewellery

Proof of investment will help you in establishing the source of the investment as against your income tax return. Apart from the tax invoices that you would keep, 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 a 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.

Acceptable quantity of gold

CBDT vide its Instruction No. 1994 dated 11.05.1994, has clarified the prescribed quantity of gold considered allowable. Gold within this limit will not be seized even at the time of search at the assessee’s premises.

• A married woman can have up to 500g of gold.
• An unmarried woman can have up to 250g of gold.
• A man can have up to 100g of gold.

Even a higher quantity of gold may be left unseized based on the assessing officer’s discretion. Factors such as family customs and traditions can be considered for such a decision.

It is important to note that the limits prescribed above apply only to jewellery held by members of the family. In the case of jewellery found belonging to any other person, the same can be seized and confiscated.

CBDT Instruction 1994 dated 11.05.1994

Instances of seizure of jewellery of small quantity in the course of operation under section 132 have come to the notice of the Board. The question of a common approach to situation where search parties come across items of jewellery has been examined by the Board and following guidelines are issued for strict compliance.

(i) In the case of a wealth-tax assessee, gold jewellery and ornaments found in excess of the gross weight declared in the wealth-tax return only need to be seized.

(ii) In the case of a person not assessed to wealth-tax gold jewellery and ornaments to the extent of 500 gms. per married lady 250 gms per unmarried lady and 100 gms. per male member of the family, need not be seized.

(iii) The authorized officer may having regard to the status of the family and the customs and practices of the community to which the family belongs and other circumstances of the case, decide to exclude a larger quantity of jewellery and ornaments from seizure. This should be reported to the Director of Income-tax/Commissioner authorising the search all the time of furnishing the search report.

(iv) In all cases, a detailed inventory of the jewellery and ornaments found must be prepared to be used for assessment purposes.

KEY NOTE

The gold purchase is not taxable in India.

(1) Income Tax on Selling Physical Gold

The most common way of buying gold is in the form of jewellery, gold bars and coins. Capital gains from the sale of physical gold is taxed based on whether it is short term or long term capital gains.

The short-term capital gains on the sale of gold is taxed at the income tax rates applicable to your respective income slabs. The long-term capital gains are taxed at 20% (plus cess) with indexation benefits (gains calculated after adjusting the purchase price of gold for inflation based on CII index).

According to current income tax laws, the taxation of this form of gold depends on how long you have held the gold jewellery/coins. The capital gains arising from the sale of gold will be short-term or long-term depending on the time period for which the gold has been held.

The capital gains on sale of this form of gold will be classified as short-term if the difference between the date of buying and selling is less than three years (36 months). Such short-term capital gains will be added to your gross total income and taxed at the income tax rates applicable to your income slab.

How is capital gain on sale of gold calculated?

STCG = Sale price – purchase price

LTCG = Sale price – indexed cost of purchase price

(2) Income tax on Sale of Inherited Gold Jewellery in India

Indians inherit a lot of gold. All the time. That’s part of the culture. As of now in India, there is no income tax levied on inheritance of gold. But the subsequent sale of the inherited gold is taxable normally.

Now if the gold was inherited (or purchased by parents) before 1st April 2001, then you can use Fair Market Value (FMV) as on 1st April 2001 instead of actual costs incurred to purchase the asset. The Fair Market Value can then be indexed to determine your cost of acquisition. This helps to get the benefit of indexation. However, if the gold was inherited after 1st April 2001, then the actual cost of purchase will be treated as the cost of the purchase price for you at the time of selling.

So it is important and advisable to maintain proper documentation of inherited gold to have sufficient proof to show that the gold was received under inheritance. More so if the amount of gold holding is large. So that was about income tax on gold jewellery and tax on selling gold in India.

Tax on gold received as gift or inheritance

If you receive gold or a gold asset as a gift, it will be taxable at receipt under the head “Income from other sources”, – if the aggregate value of gifts including gold received during the year exceeds ₹ 50,000.

However, there are some exemptions available on movable gifts (including gold).

• Aggregate value of gifts is less than ₹ 50,000 in a year
• Gifts are received from relatives specified in the Income Tax Act, which include
  • Spouse of an individual
  • Brother or sister of an individual
  • Brother or sister of spouse of an individual
  • Brother or sister of either of parents of an individual
  • Any lineal ascendant or descendent of an individual
  • Any lineal ascendant or descendent of spouse of an individual
• Gifts are received on the occasion of the marriage of the individual from friends or relatives
• Any asset received as inheritance either under will or under law of succession which is applicable to you.

If the gain qualifies as long term capital gains, it will be taxable at the rate of 20%. If the gain qualifies as short term capital gains, then tax rate corresponding to the normal rate for the assessee as determined based on his total income is applicable.

(3) Income Tax on gains from selling Gold Exchange Traded fund (gold ETFs) / gold Mutual Funds (Paper gold)

Gold ETFs and Gold Funds are considered as gold investments. Gold ETFs are securities that track the metal’s prices and they are traded on stock exchanges. Gains from sale of gold ETFs or gold MFs are taxed similarly to that of physical gold.

The taxation of gold mutual funds and gold ETFs at the time of redemption is same as selling gold jewellery. If the time period between the date of investment and date of redemption is less than three years, then capital gains will be classified as short-term, added to the person’s gross income, and taxed accordingly. On the other hand, if the time period exceeds three years, then these gains will be treated as long-term and taxed at 20 per cent plus cess with indexation benefit.

(4) Income Tax on selling Sovereign Gold Bonds (SGB)

Profit from sale of Gold Sovereign Bonds is fully exempt from tax. However, interest earned on Gold Sovereign Bonds is taxable as per the applicable Income Tax provisions.

Sovereign Gold Bonds come with a maturity period of 8 years, with an exit option from the fifth year. Sovereign gold bonds are also traded on stock exchanges within a fortnight of issuance, offering an early exit option for investors. Capital gains arising from redemption of sovereign gold bonds have been exempted from tax. Also, indexation benefit is provided to LTCG arising to any person on transfer of bonds.

The maturity amount that you will receive after 8 years is linked to the gold prices prevailing at that time in the market. In the case of sovereign gold bonds (SGBs) if any capital gains arise at the time of maturity, then those will be exempted from tax. However, as an investor, you have an option to exit from the scheme post the expiry of lock-in period after five years.

SGBs earn an interest of 2.5 per cent per annum on the amount of initial investment. Interest is credited semi-annually to the bank account of the investor. “Interest earned from these bonds will be taxable in the hands on the recipient under the head Income from other sources and taxed at the rates applicable to your income but TDS is not applicable.

“If you exit from the scheme after five years, any capital gains arising from such a sale will be taxed as long-term capital gains at 20 per cent with indexation. However, TDS provisions will not be applicable at the time of maturity or sale of the bonds,”

These SGBs have a maturity period of 8 years, with an exit option from 5th year onwards. But sovereign gold bonds can also be traded on stock exchanges within a fortnight of issuance, offering an early exit option for investors.

Taxation on Sale of Sovereign Gold Bonds in Secondary Market / Stock Exchange – SGBs are allowed to be sold (traded) on the stock exchange even before maturity. So any gains or losses arising from the sale of SGB will be considered as a capital gain (or loss). But even on selling on exchanges, the time of holding will be considered. So if you sell the Gold bond on exchange within 3 years, then it will be short term capital gains taxed as per your income tax slab. But if you sell the gold bonds after 3 years but before maturity, then it will be long term capital gains and taxed at 20% with indexation. But do note that the TDS is not applicable.

(5) Income Tax on selling Digital Gold

Digital gold is the latest way to accumulate gold. Many mobile wallets such as Paytm, Google Pay, and PhonePe have tied up with MMTC-PAMP or SafeGold to sell gold, starting from a minimum value of Re 1, to its customers. Many companies and new startup (in partnership with government-backed firms like MMTC, etc.) have started offering something called Digit Gold. The taxation of capital gains from the sale of digital gold is similar to that of physical gold / ETF, etc. Buying and selling of gold is easy on these platforms as gold bought is kept in digital form.

Tax on digital gold

Many banks, fintech and brokerage companies, in partnership with MMTC, offer digital gold through their apps. Investors can invest very small amount of money in gold through this route. Income tax on digital form of gold is similar to what is applicable to the physical form of gold or gold ETFs or gold mutual funds.