The government on Thursday issued a clarification with regard to holding of gold after rumours started doing the rounds that the Centre is preparing ground to seize the personal possessions in the form of the yellow metal.
It said there is no limit on legitimate holding of gold and jewellery, including from inheritance, and there would be no seizure of bullion up to a certain limit even if that does not seem to match the source of income declared by an individual.
Here are all the key facts you need to know about the latest clarification:
What is the clarification all about?
It sought to clarify the apprehension that the jewellery with the household which is acquired with disclosed sources or exempted income shall become taxable under the proposed Taxation Laws (Second Amendment) Bill, 2016 "is totally unfounded and baseless".
There were rumours that all gold jewellery, including the ancestral ones, shall be taxed 75 percent plus cess with a further penalty liability of 10 percent of tax payable.
The ministry clarified that the Bill has not introduced any new provision regarding chargeability of tax on jewellery. It further said one of the amendments pertains to the applicable tax rate under Section 115BBE of the Income-tax Act, 1961 (the Act). The rate has been increased from the existing 30 percent to 60 percent plus surcharge of 25 percent and cess thereon. This rate is applicable to unexplained investments 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 clarification said.
It 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.
However, the clarification brought back into focus the CBDT circular of 1994 which said 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". Also, there is no limit on holding of jewellery bought with legitimate legitimate.
Late in the night, the ministry further issued four points of clarification:
1) There is no limit on holding of gold jewellery or ornaments by anybody provided it is acquired from explained sources of income including inheritance.
2) Instructions issued in the matter of search and seizure of gold jewellery in 1994 CBDT circular continue to hold.
3) Jewellery and ornaments to the extent of 500 gms for married lady, 250 gms. for unmarried lady and 100 gm for male member will not be seized, even if prima facie, it does not seem to be matching with the income record of the assessee.
4) Officer conducting search has discretion not to seize even higher quantity of gold jewellery based on factors including family customs and traditions.
What does the clarification mean?
First and foremost, no new regulation with respect to search and seizure for jewellery.
As far as inherited jewellery is concerned Tapati Ghose of Deloitte, Haskins and Sells, says that those who have such assets should have anyways declared in wealth tax returns until 2014-15. In 2015-16, since the wealth tax was abolished, those who have taxable income above Rs 50 lakhs should have anyways declared in the assets and liabilities schedule of the returns, Ghose is quoted as saying in the Business Standard.
Sunil Shah, partner, Deloitte Haskins and Sells, says the government's intentions was to clarify that the tax will be attracted only for unexplained assets or investments. "No tax will be chargeable if the owner is able to provide a satisfactory explanation. For example, jewellery acquired out of disclosed income or out of exempted income or which is inherited. Legitimately acquired jewellery will not be taxed and the legal position remains unchanged,” he says.
In short, if your jewellery is bought with income from sources that are disclosed, then there is nothing to worry about.