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Since Diwali is round the corner many of us buy gold or gold jewellery. Many of you must be wondering as to how much gold a person can own under the tax laws. In this article I propose to explain the attitude of the income tax department about you owning gold. Let us discuss.

Is there really any limit upto which one can own gold?

We in India had Gold Control Act, 1968, which prohibited citizens from owning gold beyond certain quantity. However, this was abolished in the year June 1990 and therefore presently there are no restriction on the quantum of gold one can hold in India.

What are the guidelines for income tax department to allow tax payers holding of gold 

Though there is no limit upto which one can own gold jewellery or ornaments but in order to avoid disputes and ensure uniformity, the Central Board of Direct Taxes (CBDT) had issued instruction for its officials on 11-05-1994 under which it had directed its officials not to seize any gold ornaments and jewellery upto a certain limit based on the gender of the person and whether one is married or not of the family members of the person raided

As per the instruction, income tax officials will not seize gold ornaments up to 500 grams for a married lady. The same limit is 250 grams for an unmarried female. For male whether married or unmarried the CBDT has prescribed a lower limit of 100 grams for each male member of the family. 

What are the implications of this circular?

This circular was issued to avoid the cases of seizure of small quantity of jewellery and to have a common approach in the mater. What this circular says that income tax officers cannot seize gold jewellery up to the specified limit even if the income of the family and status in the society does not warrant holding of so much gold jewellery and ornaments.  

The CBDT instruction does not specify any limit as to how much gold in any form one can hold but only provides for relief to the tax payers from their jewellery being seized and taken away by the income tax officer during raids. Please note that this instruction covers only the jewellery and ornament of the family.  So the jewellery claimed to belong to a non family members can be seized and taken away irrespective of the quantity. 

As per this instruction the tax officers are clearly prohibited from seizing and taking away gold jewellery upto the specified limit under all the circumstances even in the cases where the source for acquisition of the jewellery does not get explained at the time or raid. However, in case you own more jewellery than specified in the instruction, the tax officials still cannot seize and take away the excess jewellery in case you are able to substantiate the source of acquisition of the excess quantity.

Gold jewellery can be either self-acquired or you might have received the same through gifts or inheritance. So in case of jewellery in excess of the specified limits claimed to be inherited, you should be able to prove it with some documentary evidence. The documentary evidence can be in the form of a Will duly supported by wealth tax return or income tax returns of the person deceased.  Likewise, for jewellery claimed to have been received as gift, you can furnish similar concrete evidence.  

Please note that the above circular in no way legalises ownership of gold jewellery upto the limits mentioned in the circular. Though a few high courts have held that possession of gold jewellery upto the specified limits cannot be added to the income of the tax payers but I still feel that though the income tax officials may not seize and leave the jewellery, after making record and entry of the gold jewellery, you may still have to explain the source such jewellery failing which the matter may land in litigation. 

So for the gold jewellery bought by you out of your tax paid money, you need not worry as long as you are able to prove how the jewellery was purchased by you. It is not necessary that the gold jewellery should have been purchased through cheques or credit/debit cards but there is no problem in case the same has been purchased through banking transaction but in case of cash purchases there should be sufficient cash withdrawals to substantiate your claim that it was purchased out of tax paid money. I would advise you to preserve all the invoices of such purchases. Even in cases where such jewellery has been exchanged/converted, please preserve all the invoices for labour charges along with the invoice for original purchase. 

The CBDT instruction applies only to the gold jewellery and not to gold in any other form or jewellery of other nature like diamond jewellery, precious stones etc. So the tax officials  can seize any gold coins,  gold bars and non-gold jewellery found during the raids even if the weight of  the same is within the specified limits  unless you are able to establish the acquisition of the same. 

Though the wealth tax has been abolished recently prior to it abolition one was liable to file the wealth tax return for and upto 31-03-2015 in case the net taxable wealth exceeded Rs. 30 lakhs.  So in case your wealth tax return has been filed where these gold jewellery and coins and bars have been included, the source of such items prima facie gets explained.

I am sure the above discussion will help you understand the implications of the CBDT circular on gold seizure at the time of income tax raids.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter.

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