If relatives gifted you gold jewellery or a coin for Diwali, will you have to pay tax if you sell it? Find out what the rules are..
Giving and receiving gold during Diwali is a common practice. Relatives might gift gold coins, chains, rings, or other pieces of jewelry. Often, such gifts remain tucked away in home cupboards or bank lockers for years, and at the time of receipt, few people think about preserving the associated documentation. However, when the need arises to sell these items in the future, questions may emerge regarding the origin of the gold and who holds the legal title to it.
In such a scenario, simply stating that the gold was a gift from a relative may not suffice. The Income Tax Department could request proof regarding the source of the gold and how it was acquired. Therefore, it is prudent to maintain relevant records from the moment the gift is received. This not only helps in establishing ownership but also simplifies the calculation of taxes when the gold is eventually sold.
To what extent is gold received from relatives tax-free?
According to income tax regulations, gold received as a gift from certain specified relatives is exempt from tax, regardless of its value. This category includes parents, a spouse, siblings, and other family members as defined by law. In other words, if you receive gold jewelry from your parents or siblings during Diwali, you are not liable to pay tax on it at the time of receipt, regardless of its value.
However, the rules differ for gifts received from friends or individuals who do not fall under the legal definition of a "relative" for income tax purposes. If the total value of all such gifts received from these individuals within a single financial year exceeds ₹50,000, the entire amount may become taxable. It is, therefore, essential to identify who gifted the gold and whether they qualify as a "relative" under the law.
What documents should be kept to prove ownership of gold?
For instance, suppose you received a gold coin from your uncle during Diwali five years ago, and you now wish to sell it. In such a scenario, it is not mandatory to have a purchase receipt in your own name. However, having some record of receiving the gold as a gift can prove helpful.
Consider keeping the following documents:
Gift Deed: This should include the names of the giver and the recipient, the date of the gift, a description of the gold, and the relationship between the two parties.
Photographs: Pictures taken during the occasion when the gold was gifted can serve as supporting evidence.
Bank Transactions: If the payment for the gold was made via a bank or digital channel, keep a record of it.
While a formal gift deed is not mandatory for every gift, having written records and other documentation makes it easier to explain the source of the gold.
How is gold received as a gift taxed upon sale?
Although receiving gold as a gift may not attract tax, selling it could trigger a Capital Gains Tax. For the purpose of this calculation, the original purchase price paid by the person who gifted the gold is generally considered your cost. In other words, the price at which your relative originally purchased the gold will serve as the basis for tax calculations.
Furthermore, when determining the holding period—the duration for which the gold was held—the time it was held by the original giver is added to your own holding period. If the combined duration exceeds 24 months, the profit from the sale is classified as a Long-Term Capital Gain. Under current regulations, this is taxed at 12.5%, and the benefit of indexation is not available.
Precautions to take if you receive gold as a gift (e.g., during Diwali):
Once you receive gold as a gift, ensure you keep all related documents safe. You may obtain a simple written letter from the giver, which should specify the weight of the gold, the date it was gifted, and the nature of your relationship. Additionally, keep any original bills, photographs, and bank records in a secure place. These simple precautions will make it easier to provide answers should any questions arise—years later, at the time of selling the gold—regarding its ownership or source. Furthermore, the information necessary for tax calculations will also be readily available.
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