Your Taxes

At the time of my marriage more than 2 decades ago, I had received many sovereigns of gold ornaments from my parents. Now, I am planning to sell that gold and invest the proceeds in FD/MF or shares. Can you explain tax implications, if any, on such sale proceeds? Do I need to obtain any document/certificate from my father as proof of having given the aforementioned gold ornaments? I am aware that gift received from father/close relatives is exempt from income tax. Does such gift income be shown under ‘details of exempt income’ while filing tax return?

Anu Rajesh

As per the provisions of the Income-tax Act, 1961, jewellery is considered as capital asset and any gain arising from transfer/sale of such capital asset is subject to capital gains tax. While computing income under the head capital gains, the cost of acquisition for the gifted property shall be the cost to the previous owner. Further, the period for which such asset is held by the previous owner is also considered while determining the nature of capital gain.

As in the instant case, gold ornaments have been gifted to you by your parents and have been held for more than two decades. Thus, such gold ornaments shall qualify as long-term capital asset and any income/loss therefrom shall be categorised as long-term capital gain/loss. Cost of acquisition of such assets in your hands shall be the cost at which your parents would have purchased those ornaments. This cost shall be indexed for inflation using the prescribed cost inflation index and the net capital gains/loss shall be calculated. The sale proceeds can be invested in purchase of FD/MF or shares.

From a documentation perspective, though the Act does not prescribe for any specific document to be maintained, you may have a written declaration from your parents with the details of the gold ornaments (such as gift, original purchase cost, date of purchase etc) provided to you along with any documentary proof of purchase. The taxability of any gift received is required to be analysed at the time of its receipt, and not at the time of further sale/ transfer of such gift.

Hence, though you received the gold ornaments more than two decades ago (when there was a separate Gift tax Act, 1958 in operation), I have not commented on the applicability of the Gift tax Act.

However, in the income-tax return forms for last year (applicable for FY 2015-16), in case the total income of an individual exceed ₹50 lakh, then the individual was required to disclose assets (which includes gold ornaments) and the corresponding liabilities as on March 31, 2016 in the income-tax return. Assuming the same disclosure requirement is continued in the tax return forms (to be notified for FY 2016-17) and also assuming that your total income exceeds the specified threshold, you shall be required to report your assets (including gold ornaments) and the corresponding liabilities as on March 31, 2017.

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

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