It is that time of the year, when many Indians are caught in a gold rush. Though today there are new instruments such as digital gold, the gold exchange traded funds (Gold ETFs) and sovereign gold bonds to direct investments in the precious metal, on the auspicious occasions that speckle the ongoing festive season, Indians continue to show preference for the physical bullion, so much so our country has surpassed China to become the biggest importer of gold. As you beeline to your jewellers, here is a heads up on the taxes and curbs your purchases will encounter:
Income Tax provisions
Know that as long as your purchases do not exceed Rs 2 lakh, you will not come under any government scrutiny. But once you cross that threshold, you cannot pay in cash as stipulated under Section 269ST of the Income Tax Act, 1961, unless you comply with the Rule 114 B of Income Tax Rules 1962 and furnish your permanent account number (PAN). Failing to comply with this will attract penalty on the seller under Section 271D of the Act, wherein the fine will be equivalent to the amount received or transacted. So, if you made a purchase of Rs 3 lakh – your jeweller will have to cough up the entire amount as penalty, for lack of compliance.
Incidentally, the KYC mandate also applies to bank transactions, though the penalty is only applicable to cash payments.
Goods & Services Tax (GST)
As far as GST is concerned, a special rate of 3% will be levied on the purchase of gold bars, coins and jewellery and an additional 5% on making charges for jewellery. Similarly, digital gold attracts a flat 3%. However, there is no such levy on Gold ETFs and Sovereign Gold Bonds.
The central government has brought the gems and jewellery sector under the Prevention of Money Laundering Act (PMLA), 2002. As per the notification issued in December 2020, jewellers are required to act as reporting entities. They are required to comply with KYC norms such as obtaining PAN/Aadhaar details of the buyer for cash transactions above the specified limits and also reporting high-value cash transactions of Rs. 10 lakhs and above to the central government. Interestingly, PMLA allows an individual, provided KYC compliance, to conduct high-value cash transactions. Any individual buying gold jewellery of Rs. 2 lakh and above is required to provide PAN/Aadhaar, whether paying in cash or using banking channels. Note that established jewellers have their internal protocols for establishing customer identity.
Disclosure in income return
To match the increase in assets with a known source of income, the Central Government has mandated those taxpayers whose taxable income exceeds Rs. 50 lakhs in the previous year to disclose all the immovable and movable properties including jewellery and bullion in the prescribed format (Schedule – AL : Statement of Assets & Liabilities) in the ITR Form 2 or ITR Form 3, as the case may be.
Limits on gold storage
The income-tax law does not prescribe any limit on storing gold jewellery or ornaments by an individual, as long as he/she is able to establish the source of income that enabled investing in them or other sources of acquisition – be it inheritance or otherwise. As per the union government’s May 1994 Circular, ornaments and jewellery to the extent of 500 gms for a married lady, 250 gms for an unmarried lady and 100 gms for a male member would not be seized, even if it is not matched with his or her income. InDecember2018, the Finance Ministry once again clarified that there is no limit on holding gold jewellery or ornaments by anybody provided it be acquired from explained sources of income including inheritance.
Consequences of undisclosed jewellery
If a taxpayer is found to be the owner of any jewellery or other valuables not not recorded in his books of account or the amount expended on making such investments exceeds the amount recorded in the books of account, then the value of such assets / excess amount expended will be treated as deemed to be the income of the concerned taxpayer for the relevant year, as per Sections 69A / 69B of the Act.
It is advisable to maintain documentary evidence to establish the source of the investment including salary slips, bank statements, original tax invoices, in the case of inheritance or gifts, receipt of the initial owner, will, family settlement deed, and gift deeds stating the transfer of such jewellery and ornaments.
(The writer is founder and chief executive officer of Shree Tax Chambers)
(Published 12 November 2023, 23:48 IST)