Jigar M. Patel
International Tax Attorney
Gold has always been more than an investment for Indian families. It is gifted at weddings, accumulated over decades, inherited from parents and grandparents and quietly passed from one generation to the next. With 24-carat gold currently costing around Rs. 1.55 lakh per 10 grams, jewellery accumulated over the years can represent a substantial pool of family wealth.
But as gold prices keep soaring, there are common questions increasingly doing rounds in Indian households: “Is there a limit to how much gold I can legally keep? What if the jewellery was received as a gift or inherited? And what happens when it is eventually sold?”
Is There a Limit on Keeping Gold?
There is no general statutory limit on the quantity of gold jewellery or ornaments an individual may legitimately hold. In fact, it would all depend on the facts of each case.
Fortunately, the CBDT guidelines, way back in 1990s, laid down a pragmatic threshold for holding of gold by a family. As per CBDT Instruction No. 1916 dated May 11, 1994,
it was clarified that the Income-tax department in the course of search proceedings or inquiry would not question the ownership of gold to the extent of 500 grams in case of a married woman, 250 grams for an unmarried woman and 100 grams for each male member of the family. In the said Circular it was also clarified that where a higher holding of ornaments has been declared under a wealth tax return, the same would also not be disputed. Moreover, keeping in view the family customs, traditions, social status and other relevant circumstances, a taxpayer may endeavour to explain and justify higher quantum of jewellery and ornaments. However, the burden of proof in such a case would lie on the taxpayer.
Consequences of not being able to explain Ownership
Under the Income-tax Act, if a taxpayer is found to be the owner of jewellery and ornaments and he is unable to satisfactorily explain the source of such holding, it can be treated as unexplained and can invite dire tax and penal consequences.
A prudent taxpayer and his family would be well advised to keep relevant record of acquisition of their gold, jewellery and ornaments. Where such acquisition can be explained by way of receipt under a Will, Inheritance, Gift from relatives on any occasion or even any gift from non-relatives, but on the occasion of marriage, they would essentially be tax exempt.
In such cases, corroborative documentary evidence or circumstantial evidence in the nature of ‘pre-ponderance of probability’ have been considered by judicial authorities as reasonable explanation for the source of acquisition.
Tax Implications when Gold is Sold
After the abolition of the indexation provisions from July, 2024, any capital gain on sale of gold jewellery or ornaments is treated as long-term, if held for more than 24 months and taxed at a flat rate of income-tax of 12.5%, plus applicable surcharge and cess. In such cases, the taxpayer would need to lead evidence in regard to the year of acquisition. Prices of gold for the different dates in respect of ornaments of different purity can be referred to even from public resources.
Where such gold is held prior to 2001, the fair market value as on 1st April, 2001, can be claimed as the deemed cost of acquisition. It should also be borne in mind that in cases of any such assets acquired under a Gift, Will, Inheritance or Partition, it is prescribed that the taxpayer can rely on the cost of acquisition and holding period of the previous owner.
