Your Taxes

I inherited gold jewellery when my grandmother passed away. Its present value is around ₹30 lakh. How do I disclose it in my income? What documentation do I require? Do I pay wealth tax on it? I may sell it 3-4 years from now. What tax do I pay if I sell now versus selling it after three years?

Mahima

Income tax liability will not apply to your case since you have inherited the jewellery from your grandmother. However, the jewellery will be considered as a qualifying asset for wealth tax purposes. The jewellery value has to be estimated as on March 31 of each year based on the market rate of gold/silver/precious metal. If this together with other qualifying assets you own exceeds ₹30 lakh as on March 31, you need pay wealth tax at the rate of 1 per cent of the amount by which the net wealth exceeds ₹30 lakh. Besides this, you would also need to file a wealth tax return on or before July 31 following the financial year.

A few assets are exempt/not considered for wealth tax. Hence, you need to first take stock of the assets in your name before taking a decision on your requirement to pay tax/file this return. As regards the documentation, it is advisable to have a copy of the will describing the jewellery bequeathed together with a valuation report for the same. In case of inherited asset, the period of holding by your grandmother should also be taken into account to determine if the asset is to be treated as a long-term capital asset (or short term). If the period of holding is greater than 36 months, the gains (difference between sale value and cost of acquisition for your grandmother) will be taxed at 20 per cent. If the cost of the jewellery is not identifiable and it was acquired before 1981, then the market value as on April 1, 1981, could be taken as the cost. This cost could be brought to current value using the notified cost inflation index. If you reinvest the sale proceeds in specific bonds or residential property, you could claim exemption from tax subject to conditions.

I have an apartment at Ahmedabad registered in the name of my wife and me. We took possession of the apartment in April 2012. We have a vacant plot in Bangalore in our joint name on which we are planning to construct a house by selling off the apartment at Ahmedabad. The apartment was bought at ₹43 lakh and the sale price now is ₹49 lakh. Since we will use the whole sale proceeds for construction of a new house, what will be the tax implications?

Nageshwara Rao

Your Ahmedabad property was completed in April 2012 and therefore any sale up to March 2015 will qualify as short-term capital asset. As a result, sale of this property within this period would attract a tax on ₹6 lakh (difference between sale and purchase cost). If you choose to defer the sale of property till completion of 36 months from acquisition, the entire gains reinvested (for immediate construction of a new property on your land) will qualify for exemption. Though there would be no tax impact in this scenario, you have to disclose the same in your tax return.

The writer is Partner, Deloittle, Haskins & Sells LLP. Send your queries to >taxtalk@thehindu.co.in

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