In the midst of a huge surge in gold prices, it would be interesting to know the general practice followed by the income tax department regarding gold holdings.
Presently, there is no law prescribing any limit up to which one can hold gold in bullion form or in jewellery form. However, the Central Board of Direct Taxes (CBDT) vide its very old circular dated 11-05-1994 has instructed its officers not to seize gold ornaments and jewellery up to a certain limit during the course of income tax raids. There are separate limits for married men and women for gold jewellery. As per these instructions, the income tax officers have been advised not to seize and take away gold ornaments belonging to a married lady up to 500 grams. The limits prescribed for an unmarried female in the family is lower at 250 grams. However, for males, whether married or unmarried, a lower limit of 100 grams per person is prescribed. Let us understand the implications of this circular and the care one should take regarding the gold they own.
The purpose of the circular was to avoid the disputes that used to arise during income tax raids, as tax officials are entitled to seize any asset, including jewellery, and take it away. The income tax officers are not supposed to seize any gold jewellery within the limits specified in the circular, irrespective of the level of standard of living or the status of the person in society being raided.
If one reads this circular closely, it does not restrict the quantum of gold jewellery and ornaments a person or a family can own as long as it is can be established that the same has been acquired from known sources of income or the source of its acquisition gets explained. It is interesting to note that the circular covers only gold ornaments and jewellery, and, by clear implication, does not cover gold coins, gold bars, or diamond or other jewellery.
It is also worth noting that the circular covers only the family members of the person raided and does not cover any other persons. So any jewellery or ornament found and claimed as belonging to non-members can still be seized without any threshold limit.
In case of inherited gold jewellery
The modes through which the gold jewellery can to be possessed by you may either be through purchase or through gift/ inheritance.
So, in case of inherited gold jewellery, if you are able to prove it with documentary evidence like a Will supported by wealth tax return or income tax returns of the deceased, the income tax representatives may not seize the inherited jewellery even if it exceeds the threshold limits. Likewise, in the case of gifts, similar donor documents need to be preserved.
I need to emphasise here that this circular in no way legalises the gold jewellery found during the raids, within the limits mentioned in the circular. So even if the tax officials may not seize the jewellery found during the raid, but will make an inventory of it, you still will have to explain the source of acquisition of the jewellery during the course of your tax assessment. Though various courts have taken a contrary view, the case may be litigated if you intend to take shelter under the court decisions.
In case you have bought the jewellery out of your tax-paid money, there is no reason for you to worry if you are able to establish the source of funds used to buy it. I strongly advise you to preserve all the purchase invoices. If the jewellery you bought has been exchanged for another piece, it is better for you to retain the invoices for labour charges along with the invoice for the original purchase. The jewellery need not be bought with cheques or credit/debit cards; it can also be purchased in cash. The law prohibits the seller from selling you jewellery for over Rs. 2 lakhs in cash.
Even if the invoices are not available, but your drawings and income are sufficient to justify the accumulation of so much jewellery, you still have a better case.
Though the wealth tax has been abolished, if you have ever filed your wealth tax returns for any year/s up to 31-03-2015, in which these gold jewellery, coins, and bars have been disclosed, the source of such items is prima facie explained. Please do not discard your old wealth tax returns. Keep proper documentation for all gold acquisitions. Stay within the CBDT “safe” limits if you want minimal scrutiny, but there’s no absolute cap, so proof is what matters most under income tax laws.
Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on his X handle. Views expressed are personal.
