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Gold Investment- Holding, Documentations & Precautions
Global demand for Gold is driven by Indians & their obsession Gold is known worldwide. Gold is considered as the best investment to hedge inflation & to meet liquidity during crisis. It is indeed a super commodity which can be easily moved, hidden or liquidated, at par with international currency. Buying gold is considered auspicious & is believed as a sign of prosperity and good luck. One of the most common questions asked is, how much Gold one can hold? When can it be seized by taxmen? What are the precautions that one should take from taxation perspective? Let me try to cover all such issues in this column.
As of now, there is no restriction for investment in Gold. Gold Control Act, 1968, which prohibited citizens from owning gold in the form of bars and coins was abolished way back in 1990. Out of explained source of money, one can purchase gold of any amount & quantity.
Whether the Gold ornaments & jewellery can be seized by the income tax department?
There is a circular dated 11-05-1994 issued by the CBDT which places some restriction on the power of income tax authorities against seizure of Gold ornaments & jewellery during income tax raids. Quantity which cannot be seized pursuant to above circular is as under:
- 500 Grams for married women
- 250 Grams for unmarried girl and
- 100 Grams for male member.
Above circular simply offers immunity against seizure of Gold ornaments within the specified limit irrespective of the capability, credit worthiness, documentary evidences and records of the taxpayers. It must be carefully noted that above circular does not make above referred quantity of gold ornaments as “explained” but merely give relief against its seizure.
Assessee may subsequently be required to prove the source of gold holding (which could be out of purchase, gift, inheritance, marriage, will etc.) by documentary evidence during assessment proceeding.
If excess quantity of ornaments is found during Income Tax Raid (Search):
Above circular nowhere blatantly empowers the tax authorities to seize the ornaments in excess of above limits. If the holding of gold is supported by proper evidences & documents then it cannot be seized even if it is in excess of above limit. The same is very clearly & specifically mentioned in CBDT press release issued on 01.12.2016 (i.e., during demonetization period).
- Investment in Gold ornaments & jewellery should be well supported by bills & vouchers of investments. It will be equally better if it is backed well by the source of investment thereto. Even if the Income Tax Act requires the records to be maintained for 6 years (10 years/16 years in some cases), it is advisable to keep the documents related to jewellery forever. If wealth tax returns have been filed in the past then it is advisable to keep the returns and documents forever so as to justify it anytime in future.
- All ornaments inherited should also be supported by some sort of evidence like will, purchase bills of deceased person, wealth tax return/ income tax returns documents of the deceased, etc. Gold received through registered will is considered as more authentic and justifiable as compared to those received through unregistered will.
- There is no restriction on Gold purchase in cash. However, it needs to be from disclosed source. PAN quoting is compulsory if the purchase amount exceeds Rs. 2 Lakh. (Jewellers/ seller are liable for penal consequences u/s 269ST if they accept Rs. 2 Lakh or more in cash in respect of single transaction).
- Ornaments received at the time of marriage or birthday or special occasion should be recorded with some documentary evidences & justification. It will be better if some formal gift deed is executed which is further backed with documents in the form of bills & source of investment.
- If the old jewellery is redesigned & replaced by new jewellery by payment of labour charges then the labour charges bill & payment should also be kept properly for its justification.
Above are some of the precautions for the taxpayers compiled on the basis of my personal experiences. Taxpayers need to keep themselves updated about the ever changing tax laws.