Gold possession rules under Income Tax act: Safe limits decoded

This post details the legal limits and tax rules for holding gold jewelry in India.

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Gold Holding Limits

People often wonder if there's a legal limit on how much gold jewelry one can own, especially in India, where it holds both sentimental and financial value. According to the Central Board of Direct Taxes (CBDT), there are guidelines regarding permissible gold limits one can possess without scrutiny during an income tax raid. The limits are set at up to 500 grams for married women, 250 grams for unmarried women, and 100 grams for men. These amounts are generally not seized even if the family's income status is low.

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Gold Tax Rules

However, possessing jewelry beyond this specified limit doesn't automatically mean your assets will be confiscated. If you hold gold beyond these limits, the Income Tax Department generally doesn't seize it if you can clearly explain the source of funds used to purchase it, be it salary, inheritance, or gift, and have proper documentation. Supporting documents include tax receipts, bank records, gift deeds, or wills if the gold was inherited.

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Gold Jewelry Limit During Income Tax Raid

Selling gold also has tax implications. If the holding period is 24 months or less, the gains are considered short-term and taxed as per individual income tax slab rates. For gold held over 24 months, the profit is treated as Long Term Capital Gain (LTCG) and taxed at 20% with indexation. Any gold acquired before January 1, 2001, can be revalued at the fair market value of that date for tax calculations. A Rs 1,25,000 exemption is available on LTCG arising from gold ETFs or mutual funds.

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Income Tax Raid

Receiving gold as a gift also has tax implications. If the value of all gold gifts received in a financial year exceeds Rs 50,000, the entire amount is taxed as "income from other sources" unless received from specified relatives, during marriage, or through a will. Therefore, careful documentation and compliance are essential.

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Taxes on Gold

Finally, a 3% GST is levied on gold purchases, and a 5% tax on making charges. While there's no GST on individuals selling gold, maintaining payment receipts is crucial, especially for customized jewelry. These documents help prove your ownership and source in case of any future tax inquiries or raids.