Disclosed, legally inherited gold not taxable says Finance Ministry

Finance Ministry said on Thursday that gold purchased from disclosed income and legally inherited gold is not taxable, according to reports.

In another development, the ministry said it will not seize any gold jewellery worth 500 grams or less from married women, 250 grams or less from unmarried women and 100 grams or less per male.

"Apprehension that jewellery with household acquired-out of disclosed sources or exempted income shall become taxable,is unfounded & baseless," a Finance Ministry tweet read.

"Govt clarifies jewellery/gold purchased out of disclosed income or exempted income or reasonable household savings is NOT chargeable to tax," a subsequent tweet read.

"Govt further clarified that jewellery/gold legally inherited & acquired out of explained sources, is also NOT chargeable to tax," another tweet read.

The ministry was reportedly monitoring gold deposits following the Nov 8 decision to demonetise higher currency notes in order to curb black money from the market.

India is the world's second largest buyer of gold and almost one third of the price is paid in black money.

Full text of Finance Ministry statement:

Government clarifies that the apprehension sought to be created that the jewellery with the household which is acquired-out of disclosed sources or exempted income shall become taxable under the proposed Taxation Laws (Second Amendment) Bill, 2016, is totally unfounded and baseless.

In the wake of Taxation Laws (Second Amendment) Bill, 2016 which has been passed by the Lok Sabha and is under consideration with Rajya Sabha, some rumours have been making rounds that all gold jewellery including ancestral jewellery shall be taxed @75% plus cess with a further penalty liability of 10% of tax payable.

It is hereby clarified that the above Bill has not introduced any new provision regarding chargeability of tax on jewellery.

The Bill only seeks to enhance the applicable tax rate under section 115BBE of the Income-tax Act, 1961 (the Act) from existing 30% to 60% plus surcharge of 25% and cess thereon.

This section only provides rate of tax to be charged in case of unexplained investment in assets.

The chargeability of these assets as income is governed by the provisions of section 69, 69A & 69B which are part of the Act since 1960s.

The Bill does not seek to amend the provisions of these sections.

Tax rate under section 115BBE is proposed to be increased only for unexplained income as there were reports that the tax evaders are trying to include their undisclosed income in the return of income as business income or income from other sources.

The provisions of section 115BBE apply mainly in those cases where assets or cash etc. are sought to be declared as ‘unexplained cash or asset’ or where it is hidden as unsubstantiated business income, and the Assessing Officer detects it as such.

It is clarified that the jewellery/gold purchased out of disclosed income or out of exempted income like agricultural income or out of reasonable household savings or legally inherited which has been acquired out of explained sources is neither chargeable to tax under the existing provisions nor under the proposed amended provisions.

In this connection, a reference to instruction No.1916 is also invited which provides that during the search operations, no seizure of gold jewellery and ornaments to the extent of 500 grams per married lady, 250 grams per unmarried lady and 100 grams per male member of the family shall be made.

Further, legitimate holding of jewellery upto any extent is fully protected. In view of the above, the apprehension sought to be created that the jewellery with the household which is acquired out of disclosed sources or exempted income shall become taxable under the proposed amendment is totally unfounded and baseless.