Most of us hold some amount of gold in the physical form, which we may have inherited or received as a gift from our parents or relatives. If you are facing a liquidity crisis and thinking of selling it as gold prices hit historic highs, you should keep the tax aspect in mind.
There is no tax in case you inherit gold or receive gold as a gift from blood relatives, but when you sell it, you are liable to pay capital gains tax in case of profits. Let’s understand how the tax on capital gains is calculated in case of inherited or gifted gold.
How physical gold is taxed
Gold can be held in physical form as jewellery, coins and bars, among others. The precious metal is a capital asset, so you need to pay tax on any capital gains you earn. If you have held the yellow metal for less than three years, you will be required to pay short-term capital gains (STCG) tax, wherein the entire gain is added to your income and taxed as per your slab. For gold held for more than three years, the long-term capital gains (LTCG) will be taxed at 20% after indexation.
Cost of acquisition
In order to calculate the capital gains or losses, you need to determine the cost of acquisition. The cost of acquisition in case of inherited gold or physical gold received as a gift is the cost of acquisition of the parent or relative from whom it has been inherited.
Therefore, receipts of their purchase will be needed. “In case invoices or receipts are there, then the cost has to be taken from there," said Vivek Jalan, partner, Tax Connect Advisory Services LLP.
In case of inherited or gold received as a gift, the cost of acquisition would be the cost price that had been paid by the person from whom such gold is inherited. “Also, if the person from whom such gold is inherited or received as a gift had originally purchased the gold before 1 April 2001, there is an option to consider the fair market value (FMV) as on 1 April 2001, instead of the actual cost of the said gold," Suresh Surana, Founder, RSM India, a tax consulting firm.
"In case receipts are not there then you will have to get the valuation done from an income tax-registered valuer as on the date of acquisition by the transferer or 1 April 2001, whichever is later," said Jalan.
In case you have received gold as a gift from a blood relative such as parents or siblings, no tax is charged on receipt. However, in case a gift is received from a non-relative and the value is more than ₹50,000, then there will be a tax under 'income from other sources’.
However, when you sell gold received as a gift, you are liable to pay LTCG or STCG depending on the holding period.
“Capital gains would be attracted even on the sale of gold, which is received as a gift. However, in the said case, the seller would be able to claim the benefit of cost of acquisition and period of holding of the person who has gifted the gold," said Surana.
Both in the case of inherited gold or gold received as a gift, to determine whether LTCG or STCG will be applicable, the holding period of the original owner will also be considered. So, the holding period will be calculated from the date on which the original owner had purchased gold, not on the date on which you have inherited or received gold as gift.
It is better to understand the tax implications and calculate how much will be your actual gains before you go to sell the gold.