ARTICLE ON LIMIT ON HOLDING OF GOLD AS PER INCOME TAX ACT 1961

(Prudent Requirements under Income Tax Act on holding of Jewellery more than the limit prescribed by the CBDT)

FAQ on government’s recent thrust on tracking unaccounted monies and investments in Liquid Assets Such as Gold:-

The purpose of this article is to make aware about all the possible benefit available to the searched person(s) in respect of jewellery found during the course of search. In this article we will discuss the various issues in detail on the following topics:

1. Source of Investment in Gold or Gold Related Items

While buying gold, it is necessary that you should buy gold on proper invoices and retain your tax invoices for future requirement. You need not worry if you can explain the source of investment in gold. The Central Board of Direct Taxes (CBDT) has specified in its press release, dated 1 December 2016 that there is no limit on holding gold jewellery provided that the source of investment or inheritance can be explained. However, it is essential that the income of the assessee is in line with the quantity of gold held. Providing necessary proof for such possession will help in avoiding scrutiny from the income tax department. Otherwise, the assessing officer also holds the authority to confiscate the gold held.

2. Permissible Quantity of Holding of Gold

CBDT has clarified the prescribed quantity of gold considered as allowable. Gold within this limit will not be seized even at the time of search at the assessee’s premises. No proof is required for possession and investment for the below mentioned quantity of Gold.

Even a higher quantity of gold may be left unseized by the discretion of assessing officer based on the family customs and traditions etc. It is important to note that the limits prescribed above apply only to jewellery held by members of the family. In the case of jewellery found belonging to any other person, the same can be seized and confiscated.

The quantity mentioned above is applicable to individual taxpayers. When it comes to a single locker having jewels from multiple families, the limit will be an aggregate of each individual taxpayer. In this case, it is recommended to open joint locker accounts with the names of the taxpayers from each family. This way you can avoid confusion.

3. What type of document/proof is valid?

Proof of investment will help you in establishing the source of the investment in Gold. Apart from the tax invoices that you would keep, you may have to provide evidences in case of inheritance and gifts. In the case of inheritance or gift, it will be great if you can provide a receipt in the name of the initial owner of the item. Alternatively, you can also submit a family settlement deed, will, or a gift deed stating the transfer of such a commodity to you.

On the other hand, if there is no such document available, the officer will analyse your family’s social status, customs, and traditions to come to a conclusion on whether your statement is valid or not.

4. Powers of Income Tax Department under Section 132 of IT Act

Section 132 of the Act confers the highest power to the income tax department (‘Department’) to invade the privacy of a person. As per this section, a search and seizure action can be carried out, in the case of any person who is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been disclosed or would not be disclosed for the purpose of the Act. The department has the power to seize any such money, bullion, jewellery or other valuable article if found unexplained at the time of the search.

The power of the authorised officer to seize jewellery during the course of search is derived from clause (iii) of  Section 132 (1), which reads that the Authorized Officer should seize any such books of account, other documents, money, bullion, jewellery, or other valuable article or thing found as a result of such search. However, as per the proviso to the said clause, any bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorised officer shall make a note or inventory of such stock-in-trade of the business. It is pertinent to note that the seizure of jewellery mainly depends upon two situations:

a) when an assessee has disclosed such jewellery in a wealth tax return

b) when the assessee has not disclosed such jewellery in wealth tax return

If during the course of search action, jewellery is seized either from the residential premises or from the bank locker, in many such cases, searched person(s) are not aware of the benefits available to them under the Act, which is explained through the CBDT guidelines and the various judicial pronouncement of high courts as given here under:

5. Guidelines issued by the CBDT vide Instruction No. 1916 dated 11^thMay 1994

In the matter of seizure of jewellery as per the said guidelines, CBDT has laid down instances as to when jewellery found need not be seized. Such instances are as under:

1. In the case of a wealth-tax assessee, gold jewellery and ornaments found in excess of the gross weightdeclared in the wealth-tax return only need to be seized.
2. In the case of a person not assessed to wealth-tax, gold jewellery and ornaments to the extent of 500 gms. per married lady, 250 gms per unmarried lady and 100 gms. per male member of the family, need not be seized.

III. The authorized officer may be having regard to the status of the family and the customs and practices of the community to which the family belongs and other circumstances of the case, decide to exclude a larger quantity of jewellery and ornaments from seizure. This should be reported to the Director of Income-tax/Commissioner authorizing the search at the time of furnishing the search report.

Summary of CBDT Guidelines on Holding Gold:-

No seizure of gold jewellery found during the course of the search, should be made by the Authorised Officer, when,

(a) Searched person has disclosed jewellery in its wealth tax return,

(b) Where the jewellery is within the prescribed limit i.e. 500 grams for married lady, 250 gram for unmarried lady and 100 grams for male members.

(c) Authorised Officer may exclude a larger quantity of jewellery from seizure having regards to status and customs of community to which they belong.

(d) It is important to note that CBDT has laid down guidelines for the ‘seizure’ of the jewellery found during the course of the search. However, it has been in various judicial pronouncement, discussed below, that although CBDT instruction is a guideline for not carrying out seizure during the course of the search, it inter-alia indicates the intention that the jewellery to the extent specified in instruction should be treated as explained jewellery in the hand of the searched person.