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May 25, 2020

Selling Gold during Covid19? Know how much Income tax you are liable to pay

by Mahesh Mara in Income Tax

Selling Gold during Covid19? Know how much Income tax you are liable to pay

The Novel Coronavirus has led to destruction of business and lay off accross the world. India has some how insulated when it comes to number of cases, however millions of people have migrated to villages and have lost jobs. In India it is customary to keep Gold as last resort for any emergency. The current Covid19 has compulsion many to sell their gold so that they can met their daily household expenses and expenses in relation to medical treatment.

It is important to know even if you sale your gold you would be liable for tax in India. It is better to calculate tax liability and plan accordingly. Also Advance Tax needs to be paid in case you have any tax liability to pay

Understand First how sale of Gold is Capital Gains

Capital gain is profit from sale of property or an investment. As per section 45(1) any profit and gain arising from transfer of a capital asset shall be chargeable under the head capital gain in the previous year in which transfer took place shall be chargeable to Capital gain.

Selling Gold? Know how much Income tax you are liable to pay

As per section 2(14) of the Income tax act, capital asset means:

(a) property of any kind held by an assessee, whether or not connected with his business or profession;

(b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992),

but does not include—

(i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession;

(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes Jewellery, archaeological collections, drawings, paintings, sculptures or any work of art.

Why gold classified as capital assets?

As per Maharaja Rana Hemanth Singh Vs CIT case, the Supreme Court observed that the asset is considered as personal effects if it is meant for personal use, mere placing the gold ornaments or jewellery in showcase is not considered as personal effect as thus gold is classified as capital assets. As per section 2(14), jewellery is not considered as personal effect also jewellery includes,  ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel and precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.

Taxation on Sale of Gold:

Sale of Gold is considered as transfer as per section 2 (47) of the Income tax act, hence capital gain is calculated on such transfer. Capital gain at the time of sale of Gold will attract income tax. The sale will attract long term or short-term capital gain depending on the period of holding. The full value of consideration shall be the amount paid at the time of sale of gold. The cost of acquisition of gold shall be purchase cost of the asset. If the gold is purchase on or before 01/04/2001 then the cost of acquisition shall be higher of cost of purchase or FMV as on 01/04/2001. Cost of acquisition can be summarized as follows:

Date of AcquisitionCost of Acquisition
Purchased after 01/04/2001Purchase cost
Purchased on or before 01/04/2001FMV as on 01/04/2001

The other aspect of capital gain on sale of gold is explained as below:

A. Classification of Capital Gain:

1. Long-term Capital Gain

Capital gain shall be classified as Long-Term Capital Gain on sale of gold if the sale is made after 3 years or 36 months from the date of purchase. Indexation benefit is available if sale of gold is classified as Long term capital asset.

2. Short-term Capital Gain:

Capital gain shall be classified as Short-Term Capital Gain on sale of gold if the sale is made within 3 years or 36 months from the date of purchase.

Note:

Indexation benefit means adjusting the cost of capital assets by considering price index or inflation. Indexation on Long term capital asset can be calculated as follows:

Cost of acquisition (X) Cost inflation index for the year of transfer/ Cost inflation index for the year of acquisition

B. Tax liability on sale of gold:

1. Short term capital gain: Short-term capital gains will be added to the assessee gross total income and taxed at the income tax rates applicable plus cess at 4%. For Instance, slab rates for individuals.

2. Long Term Capital Gain: Long term capital gains are taxed at 20% along with surcharge, if any, plus cess at 4% with the indexation benefit.

Rebate Benefit Applicable on sale of Gold?

1. If income of assessee is only capital gain on sale of gold then the assessee will get the benefit of basic exemption limit i.e. the capital gain is adjusted against the basic exemption.

2. In case of long-term capital gain the assessee is not eligible for rebate u/s 87A even if the income is less than Rs. 5,00,000.

For e.g. Mr. X has sold Gold of Rs. 5,00,000 on 25/04/2019, the cost of acquisition was Rs. 50,000 and was purchased on 10/05/2001. Mr. X is not having any other source of income. Cost inflation index: 2001-02: 100 2019-20: 289. Calculate total income and tax on total income of Mr.X

Hence, the taxable capital gain in hands of Mr. X shall be as follows:

ParticularsAmount
FVOC5,00,000
Less: Index cost of acquisition1,44,500
Long term capital gain3,55,500
Less: Basic exemption limit2,50,000
Taxable long-term capital gain @ 20%1,05,500
Tax liability on LTCG at 20%21,100
Add: Health and Education cess @ 4%844
Total tax liability21,944

Index cost of acquisition of gold: 50,000 X 289/100 = 2,89,000

GST Implication on sale of Gold

As per press release dated 13th July 2017, the GST department clarified that the sale of old gold jewellery by an individual does not attract GST as it is not a transaction in the ordinary course of business and hence the said transaction does not qualify to be a supply and hence it will not attract any provisions of GST and hence no GST is payable. Also, where sale of old gold jewellery is made by an unregistered supplier to registered supplier i.e. unregistered gold smith to a registered gold smith then the reverse charge provision is applicable and GST is payable accordingly.

What is Treatment of Gold ETF?

Holding Physical Gold is risky, govt of India has provided option of investment in “Gold ETF” or sovereign gold bonds (SGBs)

“ETF” means “Exchange Traded Funds.” Purchase sale of ETF is carried out through stock market.Generally if gold held as assets, is purchased are sold within three years then short term capital gain on the profit is levied at normal rates applicable to individuals and if sold after three years then long term capital gain is levied on the profits @ 20%. However taxation of Gold ETF is same as selling gold It means if Gold ETF is sold after 36 months from the date of purchase then Long term capital gain tax is levied @ 20% on the profits and if it is sold within 36 months then short term capital gain tax on the profits will be levied at normal slab rates.

Is Advance Tax to be paid if you sold Gold in June 2020?

Every person whose estimated tax liability for the year is Rs. 10,000 or more is liable to pay advance tax. First you need to calculate your tax liability on sale of gold and pay tax in advance as per the below table

Advance tax is to be paid in different instalments. The due dates for payment of different instalments of advance tax are as follows

Due Dates DateBy 15th JuneBy 15th Sept.By 15th Dec.By 15th March
All Taxpayers Minimum 15% of advance taxMinimum 45% of advance taxMinimum 75% of advance taxMinimum 100% of advance tax

If you dont pay advance tax on time, then you will be liable to pay interest.

The CBDT vide the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020, dated 3 1-03-2020, has extended all respective due dates, falling during the period from 20-03-2020 to 29-06-2020, till June 30, 2020.

The benefit of extended due date shall not be available in respect of payment of tax. However, any delay in payment of tax which is due for payment from 20-03-2020 to 29- 06-2020 shall attract interest at the lower rate of 0.75% for every month or part thereof if same is paid after the due date but on or before 30-06-2020

Let us Understand Capital Gain on Gold by two Examples

Case 1:

Mr. X has purchased gold ornaments worth Rs. 3,00,000 on 13/04/2018, he sold the gold on 20/04/2019 for Rs. 4,50,000. The other income of Mr. X is Rs. 4,00,000. Assume that Mr. X has made no investment.

Let us calculate the Total Income and tax liability of Mr. X

Mr. X has sold the gold within 3 years from the date of purchase, hence the gold is classified as short term capital asset.

Calculation of Short term capital gain and total Income of Mr. X:

Calculation of Short-term capital gain

ParticularsAmount
FVOC4,50,000
Less: Cost of Acquisition3,00,000
Short term capital gain1,50,000

Calculation of total Income of Mr. X

ParticularsAmount
Short term capital gain1,50,000
Other Income4,00,000
Net total Income5,50,000
Tax liability as per slab rates22,500
Health and Education cess @ 4%900
Total Tax Payable23,400

Case 2:

Mr. X has purchased gold ornaments worth Rs. 1,00,000 on 13/04/2001, he sold the gold on 20/04/2019 for Rs. 4,50,000. The other income of Mr. X is Rs. 4,00,000. Assume that Mr. X has made no investment.

Cost inflation index: 2001-02: 100 2019-20: 289

Let us calculate the Total Income and tax liability of Mr. X

Mr. X has sold the gold after 3 years from the date of purchase, hence the gold is classified as Long term capital asset.

Calculation of Long term capital gain and total Income of Mr. X:

Calculation of Short-term capital gain

ParticularsAmount
FVOC4,50,000
Less: Index Cost of Acquisition2,89,000
Short term capital gain1,61,000

Index cost of acquisition of gold: 1,00,000 X 289/100 = 2,89,000

Calculation of total Income of Mr. X

ParticularsAmount
Long term capital gain1,61,000
Other Income4,00,000
Net total Income5,61,000
Tax on normal income as per slab rates7,500
Tax on Long term capital gain at 20%32,200
Total Tax liability39,700
Health and Education cess @ 4%1,588
Total Tax liability41,288

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