Top News

Prime Minister Narendra Modi has appealed to the public to refrain from purchasing gold for one year to help conserve India's foreign exchange reserves. Consequently, many individuals may consider exchanging their old jewelry for new designs crafted. However, this is not treated merely as a simple exchange; rather, it is deemed a 'transfer' of a capital asset, which may attract Capital Gains Tax.

When the value of old jewelry is adjusted against the cost of new jewelry, it is treated as a 'sale' for tax purposes. The difference between the original purchase price of the old jewelry and its current market value is considered a 'profit,' and it is this profit that is subject to Capital Gains Tax. The applicable tax rate depends on the duration for which the jewelry was held by the owner.

**How ​​much tax applies to old gold?**
If gold jewelry has been held for a period exceeding 24 months, the profit derived from its sale is classified as a 'Long-Term Capital Gain' and is subject to a tax rate of 12.5%. Conversely, if the jewelry has been held for 24 months or less, the profit is classified as a 'Short-Term Capital Gain.' In such cases, the tax is levied according to the individual's applicable income tax slab rate.

**Mandatory Disclosure in ITR**
It is mandatory to disclose all details regarding the sale or exchange of gold jewelry in one's Income Tax Return (ITR). Information regarding capital gains must be furnished in 'Schedule CG' of the ITR to avoid potential scrutiny or notices from the Income Tax Department. According to Sandeep Sehgal, Tax Partner at AKM Global, jewelers who are subject to statutory audits are required to report cash transactions exceeding ₹2 lakh to the government. This information subsequently appears in the Annual Information Statement (AIS). Therefore, the details provided in the ITR must reconcile with the information reflected in the AIS.

**Rules for Inherited Jewelry**
If the inherited jewelry was originally purchased prior to April 1, 2001, its 'Fair Market Value' (FMV) as of that specific date may be adopted as the 'cost of acquisition' for the purpose of calculating the tax liability. According to Neeraj Agarwal, Senior Partner at Nangia & Co., if documentation is unavailable for jewelry purchased after 2001, a valuation report from a government-registered valuer becomes essential. This serves as crucial evidence during income tax assessments. He further noted that the duration for which the jewelry was held by its previous owner is also a determining factor in classifying the resulting profit as either long-term or short-term.

**Deductions Apply When Exchanging Old Jewelry**
Some amount of gold is inevitably lost during the processes of melting, cleaning, and refining old jewelry. To account for this, jewelers typically levy a "wastage charge" ranging from 5% to 8%. Furthermore, stones, pearls, *meenakari* work, or other non-gold components embedded in the jewelry are removed, and the valuation is based solely on the weight of the pure gold. Additionally, some jewelers may apply further deductions to mitigate market risks and account for price fluctuations.

Disclaimer: This content has been sourced and edited from TV9. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.