My mother plans to sell some of the gold jewellery she got as gift in 1960 during her marriage. What would be the tax implications as this was never mentioned in the income-tax returns that she had been filing over the years?

—Gurmeet Arora

Jewellery is a capital asset which is subject to capital gains tax as per the Income-tax Act. As per section 49 of the Act, if an assessee acquired any asset by way of gift, the cost of the capital asset for the purpose of computing capital gains shall be the cost at which the previous owner acquired it. Further, as per section 55 of the Act, where any capital asset, which becomes the property of the assessee under a gift and had been acquired by the previous owner before 1 April 1981, then the cost shall be taken as cost to the previous owner or fair market value (FMV) on 1 April 1981.

Keeping these sections in mind, the cost of jewellery for the purpose of calculating capital gains shall be the FMV as on 1 April 1981 or the cost at which the previous owner acquired the jewellery.

The FMV of the jewellery as on 1 April 1981 will have to be obtained from an approved jeweller. The FMV so obtained will have to be indexed so as to arrive at the present indexed cost. The cost inflation index for FY11 is 711. Accordingly, the FMV will have to be multiplied by 711 to arrive at the indexed cost of acquisition.

The difference between the sale consideration and the indexed cost of acquisition would be taxable as long-term capital gains and would be chargeable to tax at 20% as per section 112 of the Act.

I am a salaried employee. I invested my past savings in shares. Recently I sold certain shares and earned capital gains of about Rs5 lakh. Is it possible to claim deduction in respect of the insurance premium paid against this income of Rs5 lakh?

—S. Singh

As per the provisions of section 111A and 112 of the Act, deduction under chapter VI-A cannot be claimed either against short-term capital gains (STCG) on which securities transaction tax (STT) has been paid or against long-term capital gains. If STT hasn’t been paid on STCG, then deduction under chapter VI-A can be claimed, up to Rs1 lakh. Payment of premium is covered within the provisions of section 80C of the Act, which is part of chapter VI-A of the Act and hence it would be covered by the above-mentioned provision.

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