Ancestral Gold Tax Exemption: No Tax on Jewellery Purchased from Disclosed Income

Taxation on Inherited Gold and Jewellery

 

According to the Finance Ministry, jewellery and gold in all their forms that are legally inherited from ancestors or bought with disclosed
income are exempt from taxation under the modified Income Tax law. ^[1]

The Central Board of Direct Taxes (CBDT) declared that gold acquired from a variety of sources, such as disclosed income, income exempted from tax, agricultural income, or reasonable household savings, would not be subject to taxes, providing a significant reprieve to those who had been hoping that jewellery would be covered by the amended law following the demonetization. Additionally, the ministry declared that gold jewellery that has been inherited or obtained from explained sources is not subject to taxation. ^[1]

 

Seizure Limits During Tax Searches

 

During income tax searches, the authorities have set specific limits for the seizure of gold jewellery to ensure that personal and ancestral holdings are respected. According to the CBDT's guidelines: ^[1]

• Married women:

  Up to 500 grams of gold jewellery.

• Unmarried women:

  Up to 250 grams.

• Male members:

  Up to 100 grams.

 

Since
gold and diamond jewellery are inherited, the gain from their transfer will be subject to taxes under the "Long-Term Capital Gains" heading. The fair market value of the aforementioned gold and diamond jewellery must be established first, based on the valuation report of the government-approved valuer, and will be taken into account as the acquisition cost, if the jewellery was owned before April 1, 1981. ^[2]

To ascertain the long-term capital gains, the indexed cost of purchase must then be calculated and subtracted from the sale consideration. If you want to use the money from the sale of your gold and diamond jewellery to buy a house, you can claim the deduction from capital gains as long as you follow Section 54F's rules. ^[2]

 

Inheritable gold taxes

 

In India, there is no tax incidence associated with gold inheritance. Depending on how long you have owned the gold, you may be subject to capital gains tax when you decide to sell it.
The way inherited assets are taxed is comparable to that of acquired assets. The inheritor's acquisition date and cost are regarded as identical to those of the original owner.
The cost to the original buyer, known as the indexed cost of acquisition, is the cost of acquisition used to compute capital gains after being adjusted for inflation. The length of time that the original owner and the inheritor held the gold together determines whether the gains were short-term or long-term. ^[3]

 

Making use of the Section 54F benefit

 

In order to receive the Section 54F benefit, taxpayers who wish to reduce their tax liability
on the sale of gold—including inherited gold— can reinvest the capital gains into investment pockets that align with their
future wealth creation goals. ^[3]

To adhere to the deadlines outlined in Section 54F, schedule the acquisition or construction of the new property before the sale. ^[3]

Within the allotted time, some sellers would not be able to reinvest in a residential home. For them, claiming the exemption temporarily may be possible by depositing the proceeds in the Capital Gains Account Scheme (CGAS) prior to filing the income tax return. ^[3]

 

Conclusion

In India, gold has great cultural and economic value and is frequently handed down through the generations. Thankfully, inherited jewellery and gold are tax-free as long as they originate from exempt or stated sources. However, depending on how long it was stored, you might have to pay capital gains tax if you sell inherited gold. By being aware of these guidelines, you can effectively manage your gold holdings while adhering to tax regulations.

 

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