Taxation on Gift, Inheritance, Investment & sale of Gold

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Taxation on Gift, Inheritance, Investment & sale of Gold

“Gold is money. Everything else is credit” – J. P. Morgan.

Diwali, India’s biggest festival is celebrated with traditional clay oil lamps, dazzling lights, colorful Rangoli & lanterns. It is also regarded as a lucky time to make investment in metals toward wealth creation. For centuries, Gold has proved itself to be the most trusted & reliable form of investments. Appreciation in the value & easy liquidity in the form of sale or Gold Loan has further strengthened the liking for yellow metal. Earlier investment in the physical form was the only option but now, one can invest in Gold Exchange Traded funds (Gold ETFs), Gold Mutual Funds (Paper gold), Gold sovereign Bonds. There are few common concerns which are often raised by the taxpayers whenever they wish to invest in Gold. The same is discussed in this article.

  1. Is there any restriction in holding any quantity of gold in physical or electronic form?
    It may be noted that CBDT vide its press release, dated 01/12/2016 has specifically clarified that there is no limit on gold holding provided its source of investment, gift or inheritance can be explained. It is always advisable to take and retain the copy of the invoice of gold purchase and keep it forever in the records. It will be much better if such investment is done through banking channels. These bills/vouchers/evidence are highly important either when it is sold or when search, survey or other investigations are carried out by the tax or other authorities. CBDT vide its Instruction No. 1994 dated 11.05.1994, has clarified that the Gold within the prescribed limit will not be seized even at the time of income tax raid at the assessee’s premises. The prescribed limit is as under:
    a)For married woman                      :  500 Gms
    b) For unmarried woman                :  250 Gms
    c) For Male                                       :  100 Gms
    Further, if the taxpayers are able to satisfactorily explain the higher quantity of gold in its possession, it may be left unseized. Factors such as family customs and traditions can also play an important part in offering satisfactory explanations.
  1. Is there any tax on Gold Inherited by legal heirs?
    Indians do inherit a lot of gold as gold is the part & parcel of Indian Family. As of now, there is no income tax levied on inheritance of gold. However, subsequent sale of the inherited gold is liable for taxation. The cost & period of holding of the deceased will be reckoned in the hands of the legal heir while computing capital gain.
  1. Is there any tax on Gold given as Gift or received as Gift?
    i) There is no tax implications while giving gold as gift
    ii) Gifts received on the occasion of the marriage of the individual or received as inheritance either under will or under law of succession is also not liable for taxation in the hands of the recipients.
    Further, gold received as a gift from “Relative”, it is not liable for taxation. However, gold received from any person other than “Relative” will be taxable in the hands of the recipient if the aggregate amount exceeds Rs. 50,000/-. Following persons are considered as “Relative” of the recipient:
    a) Spouse of an individual
    b) Brother or sister of an individual
    c) Brother or sister of spouse of an individual
    d) Brother or sister of either of parents of an individual
    e) Any lineal ascendant or descendant of an individual
    f) Any lineal ascendant or descendant of spouse of an individual
  1. What are the tax implications on sale of Gold, Gold ETF, Gold Sovereign Bonds?
  2. a)Taxation on sale of Physical Gold
    Profit arising on sale of physical gold is taxable under the head “Income from Capital Gain” except in case of persons who are into the business of jewellery where it is a “Business income”.
    If gold is sold after a holding period of more than 36 months then profit on sale of it is treated as Long Term Capital Gain (LTCG), else it will be reckoned Short Term (STCG). LTCG is required to be computed by reducing the indexed (to compensate for inflationary effect) cost of acquisition from the net selling price. In case the gold is not purchased by the taxpayer but the same is inherited (or is received by way of gift) then the cost & date of the previous owner is also to be reckoned in the hands of the recipient for computing capital gain. If the gold is purchased on or before 01.04.2001, the rate as on 01.04.2001 can be adopted for computing Capital gain. LTCG is taxable @ 20% plus applicable surcharge and education cess.
    LTCG arising on sale of gold can be saved by claiming an exemption u/s 54F by investing the sale proceeds for purchase/constructions of a house property. Option to save tax by investing the amount for purchase of NHAI/REC bonds u/s 54EC is not available now. W.e.f. FY 2018-19, exemption u/s 54EC is available only if the LTCG is arising from sale of Land or Building. STCG is treated like any other regular income and taxable according to the applicable tax slab of the taxpayer.
    b)   Taxation of Gold ETF or Gold Mutual Fund:
    Gold ETFs scores well over physical gold due to convenience of storage and disposal, even though such convenience may entail a small cost in terms of charges. It is considered as more safe & returns oriented investment as it is theft free & has better liquidity without purity issues. Tax treatment of units of gold ETFs are similar to that of “Debt funds” of mutual funds. As Gold ETF are not equity oriented mutual funds, LTCG on sale of gold ETF’s is not exempt from tax. Also, STCG would be taxed at a normal rate & not at a special rate of taxation of 15% applicable on sale of shares through recognized stock exchanges.  The holding period, tax rate, capital gain exemption, etc for gold ETF are similar to that of physical gold as already discussed above. i.e., the holding period for an ETF to qualify as long term is a period of more than 36 months and the tax rate applicable would be 20%. Indexation benefit as well as tax saving options u/s 54F is available for saving tax on LTCG arising from Gold ETF.
  3. c)Taxation of Gold Sovereign Bond Scheme:
    Sovereign Gold Bonds (SGB) is in fact a unique Government security which is denominated in grams of gold.  Physical Gold & Gold ETF are considered as passive investment as it offers only an opportunity of price rise as against investment in Gold Sovereign Bond which offers fixed interest income too (though at nominal rate).  It is one of the best options & a better substitute for Gold ETF/physical gold. Interest received on sovereign gold bonds is taxable as “Income from other source”. Capital gains arising on such bonds shall be fully exempt on maturity. However, the profits made on sale of such bonds before the redemption date shall be taxable depending on the holding period.

Gold is considered as a global currency which works even when all others fail. It is often considered as the best protection against inflation and represents the least risk of capital loss.  The fact remains

Where gold speaks every tongue is silent- Proverb

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