Photo: iStock
Photo: iStock

You have to pay tax on capital gains from sale of jewellery received as gift from parents

If the cumulative period you and your mother or grandmother held the jewellery exceeds 36 months, the gains arising from the sale are taxable as LTCG, taxed at the rate of 20%

I have been investing in PPF, but only intermittently. I used to avail the tax benefit in the years in which I deposited money in the account. I want to withdraw the whole amount, even though the full 15 years are not over. What will be the tax treatment for this?

—Hetal Shah

Withdrawal from Public Provident Fund (PPF) is typically permitted only after maturity (i.e. 15 years from the end of the year in which the initial subscription was made into the PPF account).

However, a premature withdrawal is permitted from the 6th year onwards (i.e. after the completion of 5 years from the end of the year in which the initial subscription was made). Such premature withdrawal is permitted only in specified circumstances—either for medical treatment of serious or life-threatening diseases of the account holder or specified immediate family members, or for incurring higher education fee of the account holder in recognized institutions.

The premature withdrawal, where permitted, will also result in a reduction in the interest earned. You may accordingly check the permissibility of the withdrawal and the impact on interest before deciding.

From a tax perspective, PPF withdrawals are exempt from taxes and hence, no tax liability would arise on premature PPF withdrawals.

I wish to gift my maternal uncle and aunt a house. I can either give them the money, or buy a house and transfer it to them. What will be the taxation rules for me and for them for this case? I have heard that gifting is more tax efficient. Please advise.

—Putul Jain

A gift received, either in cash or in kind, from a specified relative (as defined in the Indian tax law) would not be treated as taxable income in the hands of the recipient of the gift. A niece is not considered as a specified relative under the tax law. Therefore gifts received by aunts or uncles (being siblings of either of the taxpayer’s parents) and spouses of such aunts or uncles would be treated as taxable income in their hands, to the extent the gift exceeds Rs50,000 during the financial year. Your aunt and uncle would need to report the gift received as ‘income from other sources’ and would be liable to pay taxes thereon irrespective of whether the same is a sum of money or a property.

It would be advisable for you to document the gift in a legal document viz. a gift deed and place it in your records. You will not be liable to tax in respect of the amount or property gifted by you. You will need to evaluate stamp duty implications, if any, arising from gifting the property.

Will there be any capital gains tax to be paid on jewellery sold that I had received as a gift from my mother and grandmother? If yes, then how will these gains and taxes be calculated? I do not have any documents showing the date on which I received these.

—Bhairavi Gokul

You would be liable to pay tax on any capital gains that arise from the sale of jewellery received by you as a gift from your mother and grandmother. The full value of consideration received by you reduced to the extent of the cost of acquisition of the jewellery, would be taxable.

The cost at which your mother or grandmother acquired the jewellery would be considered as the cost of acquisition, since these were gifted to you. Also, the periods for which they held the jewellery would be included in computing the period you held the jewellery.

If the cumulative period you and your mother or grandmother held the jewellery exceeds 36 months, the gains arising from the sale are taxable as long-term capital gains (LTCG), taxed at the rate of 20% (plus applicable cess and surcharge). If not, such gains would be chargeable to tax as short-term capital gains at the normal tax rates applicable to you in the year of sale (plus surcharge and cess).

The cost of acquisition would be indexed for inflation, to compute the LTCG, by using the Cost Inflation index (CII) notified by the tax authority in the years of purchase and sale. If the jewellery was originally acquired by your mother or grandmother prior to 1 April 2001, you have the option of treating the Fair Market Value (FMV) of the jewellery as on 1 April 2001 as the cost of acquisition while computing taxes, instead of the actual costs incurred by them to purchase the asset. Such FMV will then be indexed using the CII notified by the tax authority as on 1 April 2001 (CII for FY 2001-02 is 100) and the year of sale (CII for FY 2017-18 is 272), to determine the impact of inflation on the FMV.

If you have not yet documented the receipt of the gifts from your mother and grandmother appropriately, you could be questioned by the tax authorities and the claim made in respect of the deduction in respect of the cost of acquisition could be disallowed.

In any case, you should obtain and retain the invoices for purchase of such jewellery by your mother or grandmother.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.

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