exchanging gold jewelery for new jewelery
Prime Minister Narendra Modi has appealed to people to avoid buying gold for a year to save India's foreign exchange reserves. In such a situation, many people may consider replacing the old jewelery with new designed jewellery. But this is not just a simple exchange, rather it is considered a transfer of capital asset, on which capital gains tax can be imposed.
When the value of old jewelery is adjusted to the value of new jewellery, it is considered a sale for tax purposes. The difference between the purchase price of old jewelery and its current value is considered as profit and is subject to capital gains tax. The tax will depend on how long the jewelery remains with you.
How much tax will be charged on old gold?
If gold jewelery is kept for more than 24 months, the profit on it will be considered as long term capital gain and will be taxed at 12.5%. Whereas, if the jewelery is kept for 24 months or less, then the profit will be considered as short term capital gain. In such a situation, tax will be levied according to your income tax slab.
It is necessary to give information in ITR
It is important to show every information related to the sale or exchange of gold jewelery in the Income Tax Return (ITR). Information about capital gains has to be filled in Schedule CG, so that investigation or notice of Income Tax Department can be avoided. According to Sandeep Sehgal, Tax Partner, AKM Global, jewelers who are audited have to inform the government about cash transactions of more than Rs 2 lakh. This information appears in the Annual Information System (AIS). Therefore the information given in ITR should match with AIS.
Rules on inherited jewelry
If the inherited jewelery was purchased before April 1, 2001, the Fair Market Value (FMV) as on that date can be considered as the purchase price for tax calculations. According to Neeraj Aggarwal, senior partner, Nangia and Co, if there are no documents for jewelery purchased after 2001, then a government registered valuer's report becomes very important. This provides evidence at the time of income tax investigation. He said the period for which the jewelery was kept by the previous owner would also be a factor in deciding whether the profits are long term or short term.
There is also a deduction on exchanging old jewellery.
Some gold gets damaged in melting, cleaning and refining old jewellery. For this, jewelers deduct 5% to 8% wastage charge. Apart from this, only the weight of pure gold is considered after removing the stones, pearls, enamel or other non-gold items present in the jewellery. Some jewelers may also make additional cuts considering market risk and price fluctuations.
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