Generally, addition of jewellery found during the course of search has been a litigated issue in India from a very long time. The jewellery found during search generally presumed to belongs to searched assessee and his family. The Assessee is required to explain the source of Acquisition of Jewellery. The Jewellery which has been disclosed in the Wealth tax return and for which the source is explained cannot be seized. The customs of receiving and gifting jewellery has been very old in India on special occasions and Jewellery in India also got transfer from one generation to another as a symbol of love, affection and inheritance. Also, it is difficult for the Assessing Officer to assess whether Jewellery is Self-purchased, gifted or inherited. Hence, in order to avoid the Litigation the Central Board of Direct Taxes had issued instruction to not to seized the jewellery up to a prescribed quantity belonging to each family member.
Power of Search Officer to Seize jewellery
The power of the authorised officer to seize jewellery during the course of search is derived from section 132(1)(B)(iii), which provides that the Authorized Officer should seize any such books of account, other documents, money, bullion, jewellery, or other valuable article or thing found as a result of such search. However, as per the proviso to the said clause, any bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorised officer shall make a note or inventory of such stock-in-trade of the business.
Guidelines for seizure of jewellery and ornaments in course of search
The CBDT has vide instruction No. 1916 dated 11th May, 1994, issued guidelines for seizure of jewellery and ornaments in course of search. The said guidelines, which is reported in (1994) 120 Taxation (St.) 98, is reproduced below. ‘Instances of seizure of jewellery of small quantity in course of operations under section 132 have come to the notice of the Board. The question of a common approach to situations where search parties come across items of jewellery, has been examined by the Board and following guidelines are issued for strict compliance:—
i. In the case of a wealth-tax assessee, gold jewellery and ornaments found in excess of the gross weight declared in the wealth-tax return only need be seized.
ii. In the case of a person not assessed to wealth-tax, gold jewellery and ornaments to the extent of 500 gms. per married lady, 250 gms. per unmarried lady and 100 gms. per male member of the family, need not be seized.
iii. The authorised officer may, having regard to the status of the family and the custom and practices of the community to which the family belongs and other circumstances of the case, decide to exclude a larger quantity of jewellery and ornaments from seizure. This should be reported to the Director of Income-tax/Commissioner authorising the search at the time of furnishing the search report.
iv. In all cases, a detailed inventory of the jewellery and ornaments found must be prepared to be used for assessment purposes.
What are the limits for holding gold jewellery and ornaments?
The first point to emphasise is that there is no restriction on possessing gold jewellery or ornaments provided they were obtained from the source of income specified. The CBDT issued a circular on May 11, 1994, which was further clarified in a press release, stating that no proof of investment is necessary for gold possessed within the authorised limits.
The above circular states that gold jewellery and accessories are exempt from seizure if:
- The assesses under investigation have declared such gold jewellery and ornaments in his wealth tax return.
- If an assessee is not subject to wealth tax, gold jewellery and ornaments up to the prescribed limitations will not be confiscated.
- Just the excess of the gross weight of gold jewellery and decorations not stated in the wealth tax return would be confiscated if the assessee is assessed to wealth tax.
When such gold jewellery and ornaments are seized, the assessee must explain the source of income for making such investments. If the assessee fails to offer an explanation or the reason provided is insufficient, the amount is taxable under section 69B at the rate prescribed in section 115BBE of the Act. The stipulated rate is 60% + a 25% fee. Add a 4% HEC and a 10% penalty on such tax.
The prescribed limit on the quantity of jewellery and ornaments that different persons can hold is as under:
| Particulars | Limit per person |
| Married woman | 500 gms |
| Unmarried woman | 250 gms |
| Men | 100 gms |
Income tax on the sale of gold
Sale of gold jewellery/bullion/Gold ETFs/ Gold MFs is taxable under the head ‘Capital gains’ as under;
- If you sell the gold within three years of purchasing it, the profit is considered a short-term capital gain (STCG). The STCG is applied to your income and taxed according to the Act’s particular slab rates.
- If you sell the gold three years after purchasing it, the profit is termed long-term capital gain (LTCG). The LTCG is taxed at 20.8% (20% plus a 4% cess). The purchase cost indexation advantage is offered (to cover inflation cost from the year of purchase to the year of sale)
GST on the purchase of gold
GST is levied at 3% on gold purchases and 5% on charges.
If you trade gold (say, bars or coins) for new jewellery, no GST has imposed again up to the weight of the gold swapped. Just the value of excess weight is subject to GST. However, no GST would be levied on the sale of gold.
Income tax on gold jewellery/bullion/Gold ETFs/ Gold MFs received as a gift
If you receive gold jewellery/bullion/Gold ETFs/Gold MFs as a gift, the entire market value of gold received is taxable if it exceeds INR 50,000. It is taxed at slab rates under the heading ‘Income from other sources’ based on your income bracket.
Nonetheless, the Act grants tax exemptions in certain circumstances:
- If the total amount of gifts you get in a year does not exceed Rs 50,000
- If the gifts come from the family listed below:
– Spouse – Brother or sister of your/your spouse
– Your/your spouse’s ancestor or descendent (e.g. children, parents, grandparents, etc.) - Gifts received from friends or relatives on the occasion of your marriage
- Any asset inherited as an inheritance under a will or other applicable succession legislation
How to save tax on LTCG arising on the sale of gold?
Section 54F of the Act exempts individuals and Hindu Undivided Families (HUFs) from paying tax on the aforementioned LTCG if the entire sale profits are invested in acquiring residential home property. To qualify for the exemption, the house property must be purchased either one year before or two years after the date of the gold sale, and the building must be finished within three years of the date of the gold sale.
Further requirements for receiving the exemption include:
- You do not own more than one residential house, other than the new one purchased on the day of the sale.
- You shall not buy or build more than one new residential house before the time limit indicated above.
- If the new house is sold within three years of its acquisition or construction, the previously excluded capital gain on the sale of gold will now be taxable in the year the new house is sold.
- If the entire proceeds from the sale of gold are not used to purchase a new home, the proportionate exemption is available, which can be computed
FAQs
Under what circumstances can jewellery be seized by Income Tax authorities?
Jewellery can be seized by Income Tax authorities if they have reason to believe that it represents undisclosed income or assets that have not been properly accounted for in the taxpayer’s returns.
Can jewellery be seized without prior notice to the taxpayer?
Generally, jewellery seizure requires a valid search warrant or authorization under the Income Tax Act. However, there are specific situations where jewellery may be seized during a raid or search operation without prior notice to the taxpayer.
What is the validity of jewellery seizure by Income Tax authorities?
The seizure of jewellery by Income Tax authorities is subject to certain legal provisions and procedures outlined in the Income Tax Act. It must be done under specific circumstances and with proper authorization from higher authorities.
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