I want to sell the jewellery gifted to me by my father at the time of my marriage. As per my understanding, since my father gifted the jewellery, I do not have any tax liability on the money realized at the time of sale. Is my understanding correct?
What Balwant Jain, a tax expert, says on the matter.
Your understanding of the taxability of the money received on the jewellery sale is not correct. Generally, gifts are not treated as income of the recipient as long as the aggregate of all the gifts received from all persons taken together during a financial year does not exceed Rs 50,000. Once the aggregate value of the gifts crosses this threshold the full value of gifts becomes taxable in your hands under the head ‘Income from other sources”.
There are certain exceptions to this rule of taxation of gifts. Gifts received from specified relatives are outside the scope of these provisions and are not to be treated as income of the recipient irrespective of value of the gift received. Parents are included in the definition of the specified relatives. So the value of the gift received from your father at the time of your marriage was not to be treated as your income.
Though the value of the jewellery at the time of receipt of gift was not treated as income but you will have the liability to pay tax on capital gains when you sell the jewellery. The quantum of tax liability will depend on whether the capital gains are long-term or short-term in nature, which is computed after calculating the combined holding period for which you and your father together held the jewellery.
The profits will be treated as short-term capital gains if the combined holding period is 24 months and the same will be taxed at your slab rate. If the holding period is more than 24 months, the capital gains will be taxed as long-term capital gains and taxed at a flat rate of 12.50%. Since indexation has been removed from the latest budget, you will be allowed to deduct the cost of the jewellery from the sale proceeds realised for the computation of capital gains. The cost for computation of capital gains will be the cost incurred by your father. In case the jewellery was purchased before April 1, 2001, you have the option to take fair market value of the jewellery on April 1, 2001 as your cost.
You can invest the sale proceeds in a residential house to save tax on such long-term capital gains under Section 54F of the Income Tax Act.
(Views expressed by the expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts)