Tax on Gold Purchase in India - How Much GOLD Can you Hold?

Guidelines on Gold Jewellery Possession in India

1.1. Permissible limits for holding gold jewelry and ornaments

CBDT, through a press release, had clarified that there is no limit on holding of gold jewelry or ornaments if acquired from explained sources of income or through inheritance.

1.2. Seizure of gold jewellery and ornaments

The CBDT, citing the circular dated 11 May 1994 regarding guidelines in the matter of search and seizure of gold jewelry, further clarified through the press release that the jewelry and ornaments held within the specified limits will not be seized during search proceedings under the Act even if does not match with his tax records. It was further clarified that no proof of investment is required for gold within the prescribed limits.

The circular mentioned above also provides that the gold jewelry and ornaments need not be seized if :

• The assessee being searched has disclosed such gold jewelry and ornaments in his wealth tax return.
• If the assessee is not assessed to wealth tax, then gold jewelry and ornaments up to the prescribed limits above will not be seized.
• The assessee is assessed to wealth tax, and then only the excess of the gross weight of gold jewelry and ornaments not declared in the wealth tax return will be seized.

The tax officer conducting the search has the discretion not to seize an even higher quantity of gold jewelry provided it is reasonable and justifiable considering family traditions and customs or any other factors.

Therefore, it is always advisable to purchase gold under valid tax invoices and retain those invoices for future reference. In case of gift or inheritance, documents like a gift deed, will, or other documents must be obtained and retained as proof of such investment.

On seizure of such gold jewelry and ornaments, the assessee shall be given an opportunity to explain the source of income for making such investments. If the assessee fails to provide an explanation or the explanation given is not satisfactory, then the same shall be taxable under section 69B at the rate specified in 115BBE of the Act. The rate specified is 60% plus a surcharge of 25% Plus an HEC of 4% and a penalty of 10% on such tax.

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

The above limits apply only to the family members of the person in respect of whom search proceedings are initiated. If any jewelry belonging to any other person(not being a family member) is found, then the same can be seized by the tax officers.

For example, search proceedings are initiated against Mr A under the Act. Gold jewelry and ornaments of around 1500 grams have been found. Of which,

• 100 gms belonged to his friend, and
• 200 gms was inherited from his mother, for which a Will was executed.

The family consists of his wife, unmarried daughter, and son.

The amount of gold that cannot be seized is computed under

Therefore, the gross weight of gold jewelry and ornaments that can be seized is 350 gms, i.e., 1500 gms - 1150 gms.

Tax on purchase of gold

2.1. Goods and Service Tax (GST) on purchase of gold

GST is levied at the rate of 3% on the purchase of gold and 5% on making charges.

If you exchange gold (say bars or coins, etc.) for new jewelry, then no GST is levied again up to the weight of such gold (bars or coins) exchanged. GST is charged only on the value of excess weight.

However, there shall be no GST levy on the sale of gold.

2.2. Income Tax on gold jewelry/bullion/Gold ETFs/ Gold MFs received as a gift

If you receive gold jewelry/bullion/Gold ETFs/ Gold MFs as a gift, it shall be taxable for you if the total market value of gold received exceeds INR 50,000. Based on your income bracket, it is taxed under the head ‘Income from other sources’ at slab rates.

However, the Act provides exemptions from tax in some instances:

• If the total value of gifts received by you is up to INR 50,000 in a year
• If the gifts are received from relatives specified below:
  • Spouse
  • Your/ spouse’s Brother or sister
  • Your/ spouse’s lineal ascendant or descendant (e.g., Children, parents, grandparents, etc.)
• Gifts received on the occasion of your marriage from friends or relatives
• Any asset received as inheritance under a will or any law of succession applicable to you
• As mentioned earlier, it is advisable to have a gift deed to avoid scrutiny by tax officers.
• If such gold received as a gift is sold, you would be liable to discharge tax on the profits, as explained below.

Income tax on the sale of gold

Sale of gold jewelry/bullion/Gold ETFs/ Gold MFs is taxable under the head ‘Capital gains’ as under:

• If you sell the gold before the end of three years from purchase, then the profit from such a sale is considered short-term capital gain (STCG). The STCG gets added to your income and is taxed based on individual slab rates under the Act.
• If you sell the gold after three years of purchase, then the profit from such a sale is considered long-term capital gain (LTCG). The LTCG gets taxed at 20.8% (20% plus a cess of 4%). Indexation benefit of the purchase cost is available (to cover inflation cost from year of purchase to year of sale).

If the gold was acquired by way of gift or inheritance, then the purchase cost for computing the profit on the sale of such gold shall be:

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

The Act provides the above LTCG tax exemption to individuals and Hindu Undivided Family (HUF) under section 54F if the entire sale proceeds are invested in acquiring residential house property. To avail of the exemption, the house property must be purchased either one year before or two years after the date of sale of gold, and in case of construction, it must be completed by three years from the date of sale of gold.

Certain other conditions for availing of the exemption are:

• You do not own more than one residential house other than the new one acquired as of the date of sale of the gold
• You must not purchase or construct more than one new residential house before the time limit mentioned earlier.
• If the new house is sold within three years of its purchase or construction, capital gain on the sale of gold exempted earlier will now become chargeable to tax in the year the new house is sold.
• If the entire proceeds from the sale of gold are not invested in the acquisition of a new residential house, then the proportionate exemption is available, which can be calculated as:

Cost of new house x (LTCG/ Net sale proceeds)

To summarise all the applicable tax laws on the purchase, possession, or sale of gold;