Section 54F Avoid capital gains tax on jewellery sale
with house buy
The house purchase must be via registered sale deed
and within specified time limit
The Bengaluru Bench of the Income Tax Appellate
Tribunal (ITAT) recently granted an exemption from long-term capital gains
(LTCG) on the sale of inherited jewellery. This decision came after an
assessing officer (AO) earlier denied the benefit under Section 54F of the
Income-Tax Act, 1961, which permits taxpayers to claim an exemption on LTCG
from the sale of capital assets other than a house property. If a taxpayer
sells assets such as stocks, bonds, jewellery, or gold for a profit (long-term
capital gains), they can avoid paying taxes on that profit by using the
proceeds to purchase a new house.
The verdict
The ITAT affirmed that the exemption under Section 54F
applies to capital gains from the sale of inherited gold and jewellery,
provided the gains are reinvested in purchasing a residential house through a
registered sale deed.
The Income-Tax (I-T) Department had challenged the
veracity of the transaction involving the sale of inherited gold, questioning
whether the assesses actually possessed such gold and labelling the entire
transaction as a sham.
The ITAT rejected the AO’s decision. The tribunal
concluded that the sale price of inherited jewellery cannot be taxed as income
arising from ‘other sources’ but rather should be treated as a long-term
capital asset inherited from the assesses mother-in-law.
Who is eligible?
The exemption under Section 54F is available to
individual or Hindu Undivided Family (HUF) taxpayers who earn long-term capital
gains (LTCG) from the sale of an asset other than residential property,
provided they reinvest the gains in purchasing or constructing a new
residential house in India. The taxpayer should not own more than one
residential house, other than the new one, on the date of sale of the asset.
How much can be exempted?
If the costs of the new asset equals or exceeds the
net consideration from the asset sold, the entire capital gains is exempt. However,
if the cost of the new asset is less than the net consideration from the sold
asset, proportionate exemption is granted. An amendment effective from April 1,
2024, has set the exemption limit at Rs 10 crore.
Taxation of inherited gold
In India, inheriting gold does not give rise to tax
incidence. When you decide to sell the gold, you might be liable for capital
gains tax depending on how long you have held it.
Taxation of inherited assets function similarly to
that of acquired assets. The cost and date of acquisition of the inheritor are
considered the same as of the original owner. The cost of acquisition for
calculation capital gains is the cost to the original purchaser, adjusted for
inflation, known as the indexed cost of acquisition. The nature of the gains
(short-term or long-term) depends on the period for which the gold was held by
the original owner and the inheritor combined.
Availing Section 54F benefit
Taxpayers seeking to save tax from the sale of gold (including inherited) should reinvest the capital gains into residential property to avail of Section 54F benefit.
Plan the purchases or construction of the new property ahead of the sale to comply with the time limits specified by Section 54F.
Some sellers may not be able to reinvest in a residential house within the time limit. For them, depositing the gains in the Capital Gains Account Scheme (CGAS) before filling the income tax return can offer a temporary solution for claiming the exemption. Sell the jewellery to large, well-known jewellers. Inform the jeweller that they should respond promptly to the I-T authorities if there are any questions in the future.
Maintain proper documentation. If you inherit a substantial amount of gold, the tax authorities might request proof of inheritance, such as a will or a partition deed.
- Priya inherited gold from her grandmother in January 2018, which the latter had bought in January 2000 for Rs 10 lakh , she sold it in January 2024 for Rs 50 lakh
- To calculate capital gains tax, the original purchase price was indexed for inflation (100 in 2000-01, 350 in 2023-24), the indexed cost came to Rs 35 lakh
- The long-term capital gain was Rs 15 lakh
- Priya’s tax liability on long-term capital gain @ 20% was Rs 3 lakh
- If Priya invests the entire net sale consideration (Rs 50 lakh) in purchasing a residential house, she can claim an exemption on the entire LTCG of Rs 15 lakh
- Under Section 54F, her Rs 15 lakh capital gain becomes non-taxable as she reinvested the sale proceeds in a residential property
- Doing so saves Priya the Rs 3 lakh tax liability
.png)
No comments:
Post a Comment
If you have any doubts, Please let me know
Please do not enter any spam link in the comment box.