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Comprehensive Guide to Gold Purchases, Possession Limits and Taxation in India

Rashmi , Last updated: 24 May 2023  
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The withdrawal of Rs 2000 notes from circulation by the Reserve Bank of India (RBI) has allegedly caused a surge in individuals purchasing gold using cash, specifically Rs 2000 notes. How much gold a person can legally buy without the requirement of presenting an ID proof or PAN card, and whether there is a limit on the amount of gold that can be purchased with cash even after providing a PAN card, are important questions. Here are some key points regarding the Purchase of Gold Jewellery, storage limits of gold jewellery and the taxation rules in India:

The government has implemented stricter rules for buying gold with cash by including the gems and jewellery sector under the Prevention of Money Laundering Act (PMLA), 2002. A notification issued on December 28, 2020, made jewellers reporting entities under the Act, requiring them to adhere to Know Your Customer (KYC) norms. This includes asking for the PAN or Aadhaar details of purchasers for cash transactions above a specified limit, as well as reporting cash transactions of Rs 10 lakh and above to the government.

Considering the cash transaction limits under income tax laws, transactions in cash above Rs 2 lakh in a single day are not permitted. Section 269ST of the Income Tax Act, 1961, prohibits cash transactions exceeding Rs 2 lakh in a single day or in aggregate from a person. If you purchase gold jewellery in cash for an amount exceeding Rs 2 lakh in a single day, you would be violating the income tax law. The receiver of the cash in such a transaction would be liable to pay a penalty equal to the amount transacted in cash, as per Section 271D of the Income Tax Act.

Comprehensive Guide to Gold Purchases, Possession Limits and Taxation in India

To illustrate, if you buy gold jewellery worth Rs 4 lakh in cash, as the transaction amount exceeds Rs 2 lakh specified in Section 269ST, a penalty will be applicable under Section 271D. The penalty amount will be equal to the cash transaction amount. In the given example, assuming a cash transaction of Rs 4 lakh occurred, the jeweller receiving the cash would be liable to pay a penalty of Rs 4 lakh. Since the penalty is borne by the receiver of the cash, jewellers are reluctant to engage in cash transactions exceeding Rs 2 lakh.

Additionally, to purchase gold jewellery exceeding Rs 2 lakh, it is mandatory to provide PAN details, irrespective of the mode of payment (cash or electronic), as per Rule 114B of the Income Tax Rules of 1962. This means that if you make a gold purchase of more than Rs 2 lakh per transaction, you are required to provide your PAN details to the jeweller.

Gold Jewellery Storage Limit

There is no specific limit on how much gold jewellery you can keep at home. However, if there is an income tax investigation, you must be able to explain the source of income that allowed you to buy or invest in gold. It is advisable to maintain proper documentation and evidence of the source of funds to avoid tax scrutiny.

Limits for Holding Unaccounted Gold Jewellery

The Central Board of Direct Taxes (CBDT) has set limits for holding gold jewellery and ornaments without requiring any proof. These limits are as follows:

  • Married woman: Up to 500 grams of gold
  • Unmarried woman: Up to 250 grams of gold
  • Men: Up to 100 grams of gold
 

Taxation of Gold

  • Indirect Tax: The purchase of gold bars, coins, and jewellery attracts a Goods and Services Tax (GST) of 3%. However, making charges for jewellery and goldsmith services are taxed at a higher rate of 5% under GST. Importing gold may also attract customs duty, agriculture infrastructure and development cess, and GST at notified rates.
  • Direct Tax: There is no direct tax at the point of purchase. However, authorities capture details of gold purchases through PAN details provided at the time of purchase. It is important to retain the proof of income sources for heavy purchases of gold to address any potential queries from authorities.
  • Tax on Sale: When you sell gold, capital gains tax is triggered. If the holding period is three years or more, it is considered long-term gains and qualifies for indexation benefits. Long-term capital gains are taxed at a rate of 20% (before applicable cess). If the holding period is less than three years, the gain is treated as short-term and taxed at the applicable income tax rates.
 

The author is a Chartered Accountant with 2 decades of experience into Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, Due diligence. Currently, the author is the founder and managing partner at RRL Global services.


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Rashmi
(business)
Category Income Tax   Report

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