Your taxes

My mother recently sold jewellery gifted to her at the time of her marriage by her parents in 1990. What are the tax implications? She also bought a house in which she is a joint holder. Can she claim deduction against the receipts from jewellery even when the house was purchased before selling the jewellery?

- Sahaj Agrawal

As per Income-tax laws, jewellery is considered as a capital asset for income-tax purposes. Capital asset (other than shares) held for more than three years is a long-term capital asset. At the time of sale of such long-term asset, the long-term capital gains shall be computed by deducting from the gross sale consideration received or accruing on sale of the long-term asset the following amounts, namely:

The indexed cost of acquisition of the asset and the indexed cost of improvement;

Expenditure incurred wholly and exclusively in connection with such transfer;

From what you have said, the jewellery held by your mother qualifies as a long-term capital asset (i.e. held for more than three years) and thus the long-term capital gain/loss on sale of such jewellery shall be calculated as mentioned above. The resulting gain, if any, will be subject to tax at the rate of 20.6 per cent (inclusive of education cess and secondary and higher secondary education cess). As per the tax provisions, if one invests the sale proceeds in a house property within a period of one year before transfer of the long-term asset, he may claim exemption from paying tax on the capital gains earned under section 54F of the Income-tax Act, 1961. Hence, if a new house is purchased by your mother within a period of one year before the sale of jewellery, the said exemption is available to her, provided the entire sale consideration is invested in the new house towards her share in the house property. It may also be noted that in case the entire sale consideration is not invested in the new house, she will be entitled to proportionate exemption from tax on capital gains.

I have gifted my younger sister some shares, which she intends to sell. Who will have to pay taxes on capital gains, if any, upon selling the shares?

- Kunjappa

Where an individual receives property, including shares, from any person during any financial year (FY) without consideration the aggregate value of which exceeds ₹50,000, it is taxable under the head “income from other sources.” However, an exemption is available if the gift is received from a relative. The term relative has been defined in the Income-tax Act, 1961 and the same includes sibling.

Hence, the shares gifted by you to your sister shall be exempt from tax in her hands. Please note that you may be required to execute registered deed/gift deed to document the gift transaction and comply with the stamp duty requirements, if any.

Capital gains, if any, resulting from sale of shares purchased by your sister from the gift money shall be taxed in your sister’s hands. Further, your sister may be asked by the tax officer to explain the receipt of gift for which she will, then, have to explain/give full details.

The writer is a practising chartered accountant. Send your queries to >taxtalk@thehindu.co.in

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