Tax implications of gold gifts

Trivia | Market Commentary 20 Aug 2018

Gold Gift Tax in India - Rules & Exemptions

A gift of gold is considered auspicious, valuable and precious. But what are its tax implications? Let’s take a look.

Defining ‘gift’

The term ‘gift’ was initially spelled out for tax purposes under The Gift Tax Act 1958. The latter got revoked thanks to the Finance Act 1998. Later, the Finance Act 2004 resurrected the gift tax and placed it in the income tax system.

What does the law say?

According to this act, gifts can be:

  • Legal tender
  • Fixed assets (property)
  • Movable property- securities, jewellery, archaeological collection, and works of art, among others

What are the exceptions?

  • Gifts from relatives: spouses, siblings, parents, or any direct family member, any individual in a Hindu Undivided Family (HUF)

However, any income gained from the gift can be taxed!

  • Wedding gifts be it from friends or family are tax-free. The receiver is advised to get the wedding date (or a date closer) on the gift deed, a document which describes the transfer of gift from giver to the receiver without any exchange of money and comes handy as a proof of the integrity of the gift as it identifies the giver, receiver, and description of the gifted gold jewellery. It also doubles up as protection against ownership claim by another person. Details about the jewellery need to be disclosed only if the receiver’s annual total income exceeds the prescribed limit for each relevant assessment year. For the year 2016-17, it was INR 50 lakhs. Also note, if parents or relatives of the couple receive gold as a gift, it’ll be taxable
  • Gifts inherited by way of a will or a legacy

However, make sure you have:

  • A copy of the will
  • A duplicate of the valuation certificate of the jewellery received or
  • Pictures of the deceased individual wearing the piece of jewellery

Limits:

If gifts from non-relatives are worth INR 50,000 or less, the receiver doesn’t have to pay tax. If jewellery is worth more than INR 50,000, the entire amount is put under ‘income from other sources’, clubbed under total taxable income, and taxed as per the rate of your income tax slab.

Additionally, if the gifted gold is sold within three years, any profits will trigger a short-term capital gain at the applicable income tax slab rate. Profits from sale after three years are taxed as long-term capital gains at the rate of 20.6% with Indexation. The indexation rate is notified by the Central Board of Direct Taxes (CBDT). If it’s unavailable, the cost price will be the fair market value as on the date of purchase by the giver.

Exemption from long-term capital gains can be claimed by investing in RECL (Rural Electrification Corporation Limited) BONDS or NHAI (National Highways Authority of India) BONDS or a residential house property. These exemptions are available subject to certain conditions.

Wealth tax

  • The jewellery/gold purchased out of disclosed income or out of exempted income such as agricultural income or out of household savings or legally inherited is not levied any tax
  • Keep a copy of the will that bequests your gold as a proof of the inheritance.
  • Though wealth tax has been abolished, a disclosure is mandatory if the aggregate value of assets, such as a vacant second house, urban land, gold, personal car, paintings, expensive watches etc., is more than INR30 lakhs or taxable income is more than INR 50 lakhs. So, the value of gold disclosed in the return is deemed legally owned.
  • For gold whose source can’t be explained during an income tax raid, there are the following limits which can’t be seized
    • For married women- 500g
    • Unmarried women- 250g
    • Men- 100g

    Do remember that these limits:

    • Apply only to gold jewellery and NOT coins and bars
    • Include both inherited and purchased gold and NOT gold held on behalf of a friend or relative

Also, search officials have the discretion to not seize higher quantity based on factors such as family customs and traditions

A gift of gold allows your loved ones to benefit from the immense social, economic, and aesthetic value of gold. Here is hoping the tips above can help you make an informed purchase the next you are looking to buy one.

Sources:
Source1

Gold Glossary

Jadanagam

A hair ornament typically worn by brides and dancers in South India, 'Jadanagam literal means 'hair serpent'. It has an intricate design that consists of four pieces. The first one is rakkadi which is in the shape of the sun and is worn at the back of the head, followed by a piece in the form of the moon. The third piece is shaped in the form of traditional flowers, and the last piece which is braided in the hair is in the form of many-headed cobra.

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