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 Sale and Purchase of Motor Vehicle in India

India is a country with the third-largest road network in the world and today there are more than 300 million vehicles. According to Statista, travelling by road is considered a preferred choice in India with over 60 percent of the population using personal or shared vehicles for commuting from one place to another. Hence, it becomes crucial for taxpayers to understand the tax implications on the sale and purchase of the motor vehicle. This article will help you understand the various aspects related to the sale/purchase of motor vehicles.

What do you mean by Motor Vehicle?

With respect to calculating the tax on sale and purchase of a motor vehicle, Motor Vehicle includes cars, buses, motorcycles, off-road vehicles, light and regular trucks.

Tax on Sale of Vehicle

If the motor vehicle is being used for personal purpose then it will not attract any tax on the sale of the vehicle as it is not considered a capital asset. However, if the motor vehicle is used for business purpose then it is considered as a capital asset and hence long term or short-term capital gains tax will be applicable.

Tax on Purchase of Vehicle

As per the finance bill 2016, when a motor vehicle is purchased the seller is required to deduct TCS. Under section 206(1F) a seller has to deduct TCS @1% on the sale of the motor vehicle that is above INR 10,00,000. It is to be noted that this tax provision will also be applicable if someone buys parts of a vehicle for INR 2,00,000 or more.

Now, as of October 1, 2020, if the buyer is a dealer i.e. B2B then TCS is required to be collected u/s 206C (1H). If the buyer is an end customer i.e. B2C then TCS is must be collected u/s 206C (1F) and section 206C(1H) may apply when the consideration received for the sale of the motor vehicle is less than INR10 lakhs but the aggregate value of which exceeds INR 50 lakhs.

Under Section 206C(1H) as of October 1, 2020 seller is required to collect TCS@ 0.01% on receipt of a sum above INR 50,00,000 against the sale of goods. It is also important to note that because of COVID 19, the rate of TCS is 0.075% (a concession of 0.025% is given) till March 2021.

Measures taken by the Government to promote the sale of electric vehicle

In order to promote the sale of electric vehicles, a new section 80EEB was introduced. Under this section as of April 1, 2020, an additional deduction of INR 1,50,000 can be claimed on the interest paid on the loan taken for the purchase of an electric vehicle.

GST on Motor Vehicle

On Motor vehicles, GST is charged ranging from 12% to 28%. In addition to GST, composition cess is also levied ranging from 1% to 22%. These rates are charged based on whether the car is petrol, diesel or electric.

FAQs

If the motor vehilce is sold for INR 10,00,000, will TCS be applicable?

No, according to the provision, TCS will be applicable if the value of the vehilce is exceeding INR 10,00,000.

Is the TCS charged in Ex-showroom price or on-road price?

TCS @ 1% is charged on the ex-showroom price i.e. on sales consideration of the vehicle.

Is the limit of INR 10,00,000 inclusive of tax?

Yes, the limit INR 10,00,000 is inclusive of VAT i.e. Sales Consideration.