Updated: Aug 6, 2020
In India, investment in gold and jewelry is a very common type of investment. And it's very common in India to sell and purchase gold and other jewelry on various occasions such as during festivals or family events like a wedding or birthday.
But even though this is the most common form of investment, yet many people are unaware of or ignoring taxability on the sale of Gold and other jewelry. Today, in this article we have tried to throw some light on Income Tax provisions that relate to the taxability on Gold and other Jewelry.
Now, before we begin we need to understand that Gold and other Jewelry are being considered as Capital Asset.
As per Section 2(14) "capital asset" means—
(a) property of any kind held by an assessee, whether or not connected with his business or profession;
(b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992),but does not include
(i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession ;
(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes—
jewellery; archaeological collections; drawings; paintings; sculptures; or any work of art.
Here, the jewelry includes:
(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;
(b) precious or semi-precious stones, whether or not set in any furniture, utensil, or other article or worked or sewn into any wearing apparel.
So from the above definition as per Income Tax Act, it is very clear that Jewelry is considered as a capital asset and profit on the sale of a capital asset is called a capital gain.
Now let's see, how to determine the capital gain on the sale of Gold and other jewelry?
To determine the gain we need to bifurcate Gold/jewelry into Long Term and Short Term asset based on their period of holding:
Gold or any other Jewelry held for less than 36 months (3 years) will be considered as Short Term Asset and gain arising on sale of such asset is Called Short Term Capital Gain (STCG) and loss is called as Short Term Capital Loss (STCL).
Gold or any other Jewelry held for more than 36 months (3 years) will be considered as Long Term Asset and gain arising on sale of such asset is Called Long Term Capital Gain (LTCG) and Loss is called as Long Term Capital Loss (LTCL).
Tax on sale of Inherited gold / Jewelry:
Gold or Jewelry received in inheritance from parents is tax-free, but it is taxed when it is sold. In such a case, the period of holding of gold or Jewelry shall be calculated, considering the period of holding of parents and the period of holding of the beneficiary, and the cost would be the original cost to the buyer.
Tax on Short Term Asset:
A Short Term Capital gain arising on the sale of Gold or Jewelry will be taxed as per normal slab rates as applicable to the taxpayer.
Tax on Long Term Asset:
A Long Term Capital Gain arising on sale of Gold or Jewelry will be taxed at 20% after taking the benefit of Indexation. Indexation means considering the cost of the asset, based on inflation over a period of time, and the purchase cost of the asset is determined after giving the effect of inflation as per the cost inflation index.
Point to be noted:
For Gold or any other jewelry that is purchased before 1st April 2001, whether by the taxpayer or their parents (then received in inheritance), taxpayer has an option to take the Fair Market Value as on 1st April 2001 and then take benefit of indexation.
Tax treatment for Loss on Sale of Gold or Jewelry:
In the case of Loss on sale of Gold / Jewelry which is Short Term Capital Asset i.e. held for less than 36 months, the loss can be set off against gain from any other long term or short term capital asset in a year.
In the case of Loss on sale of Gold / Jewelry which is Long Term Capital Asset i.e. held for more than 36 months, the loss can be set off against gain from any other long term capital asset in a year.
Point to be noted:
If in case the loss, whether short term or long term can not be setoff in a year in which it is incurred, then such losses can be carried forward up to the next 8 assessment years and can be setoff as said above in any relevant year.