Capital Gain Tax on Movable Property : Jewellery, Car, Painting

Income from the sale of a capital asset is treated as Capital Gains as per Income Tax. Based on the nature of the capital asset and the nature of the capital gain, the income tax department has defined the provisions for capital gains tax. Movable property such as jewellery, car, painting, work of art, etc has a period of holding of 36 months. Capital Gain Tax on movable property such as jewellery, car, painting, etc is taxed at slab rates in case of Short Term Capital Gain i.e. STCG, and at a rate of 20% with the benefit of indexation in case of Long Term Capital Gain i.e. LTCG.

Capital Gains on Sale of Jewellery, Car, Painting, etc

The Income Tax Department has laid out specified sections for taxation of capital assets such as Section 112A for LTCG on equity shares and Section 111A for STCG on equity shares. Let us understand the capital gains on other capital assets and their tax treatment. Other capital assets include the following:

  • Jewellery – ornaments made of gold, silver, platinum, precious stones, etc
  • Drawings & Paintings
  • Archaeological collections
  • Sculptures
  • Work of art
  • Motor Vehicle i.e. car, bus, motorcycle, truck, etc
  • Any other property held by a taxpayer

Any income or loss arising on the sale of any of the above-listed assets is treated as Capital Gains. Section 2(42A) of the Income Tax Act defines a Short Term Capital Asset and Section 2(29A) defines a Long Term Capital Asset. Based on this definition, the period of holding in the case of other capital assets such as jewellery, car, painting, etc is 36 months. Thus, if such capital asset is sold within 36 months of purchase, the profit or loss is STCG and if sold after 36 months, the profit or loss is LTCG.

Income Tax on Sale of Jewellery, Car, Painting, etc

Capital Gains on sale of movable property such as jewellery, car, painting, etc is taxable based on the nature of capital gain. Following is the tax treatment for capital gains on movable property:

Capital Gain
Description
Income Tax Rate
Long-Term Capital Gain Sold after 36 months from purchase 20% with Indexation u/s 112
Short-Term Capital Gain Sold within 36 months from purchase Slab Rates

Short Term Capital Gain on Sale of Movable Property at Slab Rates

If a movable property such as jewellery, car, painting, etc is sold within 36 months from its purchase, the profit or loss is a Short Term Capital Gain or Short Term Capital Loss. STCG on a movable property is not a special rate income and is taxable at slab rates.

Long Term Capital Gain on Sale of Movable Property under Section 112

If a movable property such as jewellery, car, painting, etc is sold after 36 months from its purchase, the profit or loss is a Long Term Capital Gain or Long Term Capital Loss. LTCG on a movable property is a special rate income taxable under Section 112 of the Income Tax Act.

Section 112 of the Income Tax Act is the provision for tax on long term capital gains. A resident individual or HUF is liable to pay tax at the rate of 20% with the benefit of indexation. Thus, long term capital gain tax on the sale of movable property such as jewellery, car, painting, etc is taxable at 20% with indexation.

Example

Mrs X, a resident in India, bought some jewellery in February 2019 for INR 15,00,000. He sold the same in March 2021 for INR 25,00,000. Calculate the tax liability.

To determine the nature of capital gain, the period of holding for jewellery is 36 months. Since Mrs X sold out the jewellery within 36 months of purchase, this will be treated as a short term capital gain. Below is the tax liability:

  Particulars Amount (INR)
  Full value of consideration or Sales consideration 25,00,000
Less Cost of Acquisition 15,00,000
  Short Term Capital Gains 10,00,000
  Tax Liability (slab rates) 1,12,500
Add Health & Education Cess (4%) 4,500
  Total Tax Liability 1,17,000

If in the above example, if she sold the jewellery in March 2022 i.e. after 36 months from purchase, this will be treated as a long term capital gain. Below is the tax liability:

  Particulars Amount (INR)
  Full value of consideration or Sales consideration 25,00,000
Less Indexed Cost of Acquisition (15,00,000 * 317/280) 16,98,214
  Long Term Capital Gains 8,01,786
  Tax Liability (20%) 1,60,357
Add Health & Education Cess (4%) 6,414
  Total Tax Liability 1,66,771

Adjustment of LTCG on movable property against Basic Exemption Limit

Taxpayers holding the status of Resident as per the rules to determine the residential status can take benefit of adjusting the special rate income against the basic exemption limit to reduce taxes. Thus, if your total taxable income is less than the basic exemption limit, you can adjust your special rate income such as LTCG u/s 112, STCG u/s 111A, LTCG u/s 112A, etc. against the shortfall in the basic exemption limit and pay tax on the remaining income only.

In the above example, if Mrs X had only LTCG income and no other income, the calculation of tax liability would be in the following manner:

Since Mrs X is a resident and the basic exemption limit is not utilised, she can take benefit of adjusting the special rate income against the basic exemption limit. Thus, taxable LTCG = 8,01,786 – 2,50,000 = INR 5,51,786. Tax Liability = 5,51,786 * 20% = INR 1,10,357.

Capital Gain Tax on movable property – Reporting under Schedule CG of ITR

The ITR Form under which the taxpayer needs to report income from capital gains includes ITR-2 and ITR-3. Taxpayer must report STCG on other assets under A5 and LTCG on other assets under B9 of Schedule CG of the ITR. The taxpayer must report the following details:

  • Full value of consideration i.e. sales value
  • Deductions under Section 48
    • Cost of acquisition i.e. purchase value (indexed COA for LTCG)
    • Cost of improvement (indexed COI for LTCG)
    • Expenditure wholly and exclusively in connection with transfer i.e. transfer expenses
  • STCG or LTCG is automatically computed

Set Off & Carry Forward STCL under Section 111A of Income Tax Act

The loss on sale of movable property such as jewellery, car, painting, etc can be a Short Term Capital Loss or Long Term Capital Loss. As per the income tax rules for set off and carry forward of losses, STCL i.e. Short Term Capital Loss can be set off against both Short Term Capital Gains and Long Term Capital Gains in the current year. The taxpayer can carry forward the remaining loss for 8 years and set off against future STCG and LTCG only. Further, Long Term Capital Loss can be set off against Long Term Capital Gains only. The taxpayer can carry forward the remaining loss for 8 years and set off against future LTCG only.

Exemption from Capital Gain Tax on jewellery, car, painting, etc

The taxpayer having long term capital gain income from the sale of movable property such as jewellery, car, painting, etc can claim the following capital gain exemptions:

  • Section 54EE – Exemption on sale of any long term capital asset on investment in units of a specified fund.
  • Section 54F – Exemption on sale of any long term capital asset (except house) on investment in residential house property.

A taxpayer can claim the exemption by reinvesting the proceeds from the sale into a specified capital asset. Such exemption would lower the capital gains and save taxes on the same. However, the taxpayer must hold the new asset for the specified period as per the relevant section. However, if he/she sells the asset before the specified time period, he/she must report it as an income in the relevant financial year and pay tax at the applicable rate.

The taxpayer has an option to open an account under the Capital Gains Account Scheme and park the sale proceeds in it till the time they invest in the specified asset to claim the Capital Gains exemption.

FAQs

How can I save capital gain tax on the sale of jewellery?

Capital gain tax on movable property such as jewellery, car, painting, etc can be saved. In the case of STCG, the Income Tax Act does not provide any specific exemption. You can save tax by setting off STCL on the sale of any other capital asset against such income. Further, you can claim chapter VI-A deduction from Section 80C to 80U. In the case of LTCG, you can claim a capital gain exemption under Section 54EE or Section 54F of the Income Tax Act.

Do I have to pay income tax on the sale of a car?

Income from the sale of a car is a Capital Gains and is taxable as per income tax. STCG on sale of car within 36 months of purchase is taxable at slab rates. LTCG on sale of car after 36 months of purchase is taxable at 20% with the benefit of indexation as per Section 112.

Can I claim Chapter VI-A deductions from Section 80C to 80U from LTCG u/s 112?

The Income Tax Act does not allow claiming deduction from Section 80C to 80U against LTCG under Section 112. However, the taxpayer can claim Chapter VI-A deductions on capital gains taxable at slab rates.

Income Tax on Gold – Investment Types, Rates, Exemptions

Investing in gold is very popular amongst investors. Based on their financial goals, individuals invest money into different forms of gold. Physical gold is the oldest form of gold investment. However, in recent times there are multiple options available for gold investment. Investors can invest in jewellery, gold coins, gold ETFs, SGB, digital gold, gold derivatives, etc. Different forms of gold investment have different tax treatments. Let us understand the tax implications on types of Gold Investments in India.

Income Tax on Physical Gold

Investment in Physical Gold means gold in the form of jewellery, bars, coins, or biscuits. Below are the tax provisions on the sale of physical gold.

  • Income Head – Income on the sale of physical gold is income from Capital Gains. If the taxpayer sells physical gold after holding it for more than 3 years, it is a Long Term Capital Gain (LTCG). If the taxpayer sells physical gold after holding it for less than 3 years, it is a Short Term Capital Gain (STCG).
  • Tax Rate – Taxpayer should pay income tax on STCG at slab rates and on LTCG at 20% with the indexation benefit.
On purchase of physical gold, the buyer must pay a GST of 3%. Further, on purchase of physical gold of more than INR 2 lacs in cash, the buyer must deduct and deposit TDS at rate of 1%.
Tip
On purchase of physical gold, the buyer must pay a GST of 3%. Further, on purchase of physical gold of more than INR 2 lacs in cash, the buyer must deduct and deposit TDS at rate of 1%.

Income Tax on Paper Gold

Paper Gold comprises Gold ETFs, Gold Mutual Funds, and Sovereign Gold Bonds (SGB). In the case of paper gold, the investor holds gold on paper but not physically. Below are the tax provisions for paper gold.

Income Tax on Gold Mutual Funds and Gold ETFs

  • Income Head – Income on the sale of gold mutual funds or gold ETFs is income from Capital Gains. If the taxpayer sells gold mutual funds or ETFs after holding them for more than 3 years, it is a Long Term Capital Gain (LTCG). If the taxpayer sells gold mutual funds or ETFs after holding them for less than 3 years, it is a Short Term Capital Gain (STCG).
  • Tax Rate – The taxpayer should pay income tax on STCG at slab rates and on LTCG at 20% with the indexation benefit.

Income Tax on Sovereign Gold Bonds (SGBs)

  • Interest on SGB i.e. Sovereign Gold Bond is an IFOS income and taxed at slab rates
  • Income on sale of SGB on expiry of 8 years is exempt from tax
  • Income on sale of SGB after 5 years but before the expiry of 8 years is a Long Term Capital Gain and the tax rate is 20% with the benefit of indexation
  • Further, Income on the sale of SGB after 12 months but before 5 years is a Long Term Capital Gain and the tax rate is 10% without the benefit of indexation
  • Income on the sale of SGB within 12 months is a Short Term Capital Gain and the tax is payable at slab rates

Income Tax on Digital Gold

Digital Gold means investing in gold through mobile wallets like google pay, Paytm, ET Money, etc. The investor does not hold physical gold and has the ability to invest in gold through online mobile wallet applications. Below are the tax provisions on the sale of digital gold.

  • Income Head – Income on the sale of digital gold is an income from Capital Gains. If the taxpayer sells digital gold after holding it for more than 3 years, it is a Long Term Capital Gain (LTCG). If the taxpayer sells digital gold after holding it for less than 3 years, it is a Short Term Capital Gain (STCG).
  • Tax Rate – The taxpayer should pay income tax on STCG at slab rates and on LTCG at 20% with the indexation benefit.

Income Tax on Gold Derivatives

Gold derivatives are derivative contracts where the underlying asset is gold. An investor can buy gold derivatives from the commodities market. The tax treatment on the trading of gold derivatives is the same as income tax on commodity F&O trading.

  • Income Head – Income on the sale of gold derivatives is a Non-Speculative Business Income. The taxpayer can claim expenses against such income and compute taxable profit/loss by preparing a P&L account.
  • Tax Rate – Non-Speculative Business Income is taxable at slab rates.

Income Tax on Gift or Inheritance of Gold

Gifting or inheriting gold is a common practice in India. Below are the provisions for income tax on gift of gold:

  • Tax treatment for Receiver – Gold received in form of a gift or inheritance from a relative (spouse, children, parents) is exempt from tax as per Section 56(2) of the Income Tax Act. However, gold received as a gift or inheritance from any other person in excess of INR 50,000 is taxable under IFOS at slab rates. A gift in form of gold received on the occasion of marriage is exempt from tax. Further, if the taxpayer sells the gold received as a gift or inheritance, it is an income from capital gains and taxed at applicable rates
  • Tax treatment for Sender – The sender is liable to report income on the transfer of gold and pay tax at applicable rates as per the provisions mentioned above.

Income Tax Rules on Gold for NRIs

Taxpayers holding the status of NRI i.e. Non-Resident Indian as per the Income Tax Act can invest in all forms of gold investments except SGB (Sovereign Gold Bonds). The rules for taxation on the sale of gold investments in the case of NRI are the same as in the case of a Resident.

However, NRIs must pay TDS on the redemption of Gold ETF or Gold Mutual Funds:

  • 20% TDS on redemption of Long Term Gold ETFs and Mutual Funds
  • 30% TDS on redemption of Short Term Gold ETFs and Mutual Funds

ITR Form & Treatment of Loss on Sale of Gold

The taxpayer must file the following ITR on the income tax website to report the income from the sale of gold:

  • File ITR-2 to report income from capital gains on the sale of physical gold, digital gold, and paper gold
  • File ITR-3 to report non-speculative business income on the sale of gold derivatives

Following are the rules for set off and carry forward of loss on the sale of gold investments:

  • Short Term Capital Loss – The taxpayer can set off STCL against STCG and LTCG. They can carry forward the remaining loss for 8 years and set off against STCG and LTCG in future years.
  • Long Term Capital Loss – The taxpayer can set off LTCL against LTCG only. They can carry forward the remaining loss for 8 years and set off against LTCG in future years.
  • Non-Speculative Business Loss – In the current year, the taxpayer can set off this loss against all incomes except Salary. They can carry forward the remaining loss for 8 years and set off against business incomes only.

How to Save Taxes on LTCG from Investment in Gold?

Taxpayers having income from capital gains can save taxes by investing in specified assets as per the exemptions under Capital Gains. If a taxpayer has LTCG income from the sale of gold, here are the available options to avail of exemption if he/she fulfills the specified conditions as per the relevant section:

  • Section 54EE – Exemption available on the sale of any long-term capital asset i.e. sale of gold and investing into units of a fund notified by the Central Government to fund startups.
  • Section 54F – Exemption available on the sale of a long-term capital asset i.e. sale of gold (other than residential house property) and investing into a residential house property

FAQs

Do I need to pay tax on the sale of gold?

Yes. Gold in form of physical, digital or paper gold is considered a Capital Asset. The holding period to determine the nature of gain is 3 years. You must compute capital gains and pay tax at 20% on LTCG with indexation benefit or slab rates on STCG.

What is the tax rate on the sale of gold ETF?

Gold ETF is treated as a Capital Asset just like other ETFs and Mutual Funds. The tax rate on Gold ETF held for more than 3 years is 20% with the benefit of indexation and on gold ETF held for up to 3 years is at slab rates.

Are gold derivatives taxed in the same manner as physical gold?

No. Gold derivatives are taxed as Commodity derivatives and thus the tax treatment is different than in the case of physical gold. Income on the sale of gold derivatives is treated as a non-speculative business income and taxed at slab rates. The taxpayer must prepare P&L and Balance Sheet and report them in ITR-3.

I inherited gold from my parents. Do I need to pay tax on it and report it in ITR?

Gold inherited from relatives is exempt from tax as per Section 56(2) of the Income Tax Act. The definition of relative includes spouse, parents, and children. You should report it as Exempt Income under Schedule EI of the ITR and need not pay tax on it.

I received gold as a gift at my wedding. Do I need to pay tax on it and report it in ITR?

Gift received from relatives is exempt from tax as per Section 56(2) of the Income Tax Act. Gift received from non-relatives is taxable if the amount is in excess of INR 50,000. However, any gift received on the occasion of wedding is exempt from income tax. Thus, you can report it as exempt income in the ITR and need not pay tax on it.