Planning To Sell Your Inherited, Gifted Gold Jewellery: Know The Tax Rules

When you sell gold received as a gift, you are liable to pay LTCG or STCG based on the holding period.
Gold Jewellery, 
Inherited Gold Jewellery, 
Tax Rules
Gold Jewellery, Inherited Gold Jewellery, Tax, Tax Rules

Many of us have inherited or gifted jewellery with us, among our treasured possessions. But what if you face a liquidity crisis and have no choice but to sell off some of these? With gold prices, reaching historic highs, you need to keep the tax aspects in mind. Typically, when you receive or inherit gold as a gift from relatives, you don’t need to pay taxes. But once you sell it, you need to pay capital gains tax in case of profits. 

Suneel Dasari, founder and CEO of EZTax said, “When gold is received as inheritance or gift, there is no capital gain. However, capital gains tax must be paid whenever the gold is sold. The original owner's purchase cost will be considered your purchase cost whenever you are selling inherited or gifted gold. At the time of purchasing jewelry or gold coins from the merchant, it is essential to have the tax invoice with the correct GST number, their address, and your address.” 

Gold inherited or received as a gift is classified as a capital asset under the Income Tax Act. Consequently, gains from its sale are taxable as capital gains. If the gold jewelry is held for over 36 months, profits are considered long-term capital gains; if held for 36 months or less, they are considered short-term capital gains.

“It should be noted that the previous owner's holding period is also included in calculating the 36-month period. Further, the cost of acquiring gold in your hand would be the amount the previous owner paid for the gold. For gold acquired before April 1, 2001, the fair market value on April 1, 2001, can be used as the acquisition cost,” Rahul Singh, senior manager, Taxmann, tax and corporate advisor said. 

“For long-term capital gains (LTCG) calculations, the cost of gold is adjusted for inflation using the Cost Inflation Index (CII). LTCGs on gold jewelry are taxed at 20 per cent with indexation benefits while short-term capital gains are added to the individual's total income and taxed according to applicable income tax slab rates,” Singh added. 

Also read: Taxation On Gold: SGB Vs Gold ETF Vs Physical Gold

Actual Gains Before You Go To Sell The Gold: 

Let's walk through a simple example of calculating the tax when you sell gold that you inherited or received as a gift.

  1. Particulars

  • Gold inherited: 100 grams from father in 2018

  • Original purchase price by father (May 2008): Rs 2,00,000

  • Selling price (Jan 2024): Rs 6,00,000

  • Selling expenses: Rs 10,000

               2. Calculation Of Capital Gains

  1. Cost Of Acquisition: It is the cost of acquisition of the gift from the parents or relatives from whom it is inherited or received as a gift. 

The cost at which your father bought the gold in 2008: Rs 200,000.

  1. Indexed Cost Of Acquisition: The indexed cost of acquisition or improvement calculator is a handy tool to calculate the increased cost of acquisition for the calculation of long-term capital gain tax. Indexed cost of acquisition or improvement plays an important role while calculating Capital gains tax on long-term capital assets.

The government provides an index (CII) to adjust the cost for inflation.

  • CII for 2008-09: 137

  • CII for 2023-24: 348

  • Indexed cost = Rs 200,000 × (348 / 137) = Rs 5,08,029

  • Capital gains

  • Selling price: Rs 6,00,000

  • Indexed cost: Rs 5,08,029

  • Selling expenses: Rs 10,000

  • Capital gain = Selling price - (indexed cost + expenses)

  • Capital gain = 600,000 - (5,08,029 + 10,000) = Rs 81,9714

    3. Tax Calculation

Since the gold was held for more than 36 months, it qualifies for long-term capital gains tax.

  • Tax rate: 20 per cent

  • Tax payable = 20 per cent of Capital Gain

  • Tax payable = 20 per cent × Rs 81,971 = Rs 16,394

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