Karneeti Part 124
Sone Ki “Chidiya” ko Tax ki “Bediya”
Arjun (Fictional character): Krishna, what is the reason of agitation held by Jewellers across the Country. Why there businesses are closed from so many days? Let us discuss the reason of agitations as well as implication of taxation on gold and effect of the same on businessman and customers.
Krishna (Fictional character): Arjuna, Government have reason to believe that black money is generally invested into jewellery and real estate. To deal with the same, in the recent years, Government have come up with the various legal provisions to regulate real estate business and transactions thereof. At this time, Government is now turned to regulate jewellery business and transactions thereof. Once upon a time, India was known as “Golden Bird” (Sone ki Chidiya). India was one of the wealthiest Countries in the world in terms of possession of jewellery, gold and silver and the same is now increasing day by day. Most people in India whether male or female have developed their interest to invest in jewellery or articles thereof. The gold worth millions of rupees are being imported in India which resultant into outflow of Indian currency out of India. Most of the purchase and sales transactions in India are dealt in cash and which effect into evasion of taxation that may lead to creation of black money. Therefore, in the recent budget i.e. 2016-17, Government have introduced new Excise Duty levy, Gold Bonds and Gold Deposit Scheme.
Arjun: Krishna, let us discuss new Excise Duty levy on Gold and its articles.
Krishna: Arjuna, with effect from 1st March 2016, Excise Duty has been imposed @ 1% (without input tax credit) and 12.5 % (with input tax credit) on articles of jewellery excluding silver jewellery, other than studded with diamonds/other precious stones. Up to turnover limit of Rs. 6 crore of clearances in a year there would not levy of excise duty. This has led to protests and strikes taking place on account of the fact these procedures are cumbersome for this largely un-organised sector. As per this new provision, in the process of manufacture of jewellery, jewellers are required to maintain records for stock statement, sales, purchases and job work charges, etc. This would lead to, according to the Government, more transparency in such type of businesses and it would help Government to collect more duty and decline in evasion of taxes as well as to check on black money involvement.
Arjun: Krishna, what is rate of Sales Tax (VAT) is levied under Maharashtra Valued Added Tax law (MVAT law) on Gold articles?
Krishna: Arjuna, as per MVAT law, VAT to be levied @ 1.2 % on purchases-sales transactions. If the turnover crosses a threshold limit of Rs. 10 lacs, VAT is require to pay to the Government account. Jewellers are paying this tax regularly. Jewellers have suggested to the Government that VAT rate can be increase to compensate excise duty levy. Jewellers are familiar to Sales Tax compliances and procedures thereof. Further, Government have reason to believe that Sales Tax is levied on sales and therefore, businesses are getting enough time to adjust sales turnover while undertaking these compliances and which may lead to according to them evasion of taxes. Therefore, Government is wishing to implement the new levy of Excise Duty. Central Excise is a stock reconciliation based control and imposition is also a step in transition to GST.
Arjun: Krishna, what are the rules and regulation under the Income Tax law on Gold & jewellery?
Krishna: Arjuna, out of net sales and purchases turnover, on which VAT is levied, Income Tax is charged on the net profit earned from such transaction by the jewellers. Moreover, Jewellers are required to collect TCS @ 1% from buyer, where cash sales transaction exceeds Rs. 5 lacs. Further, buyer of jewellery is required to provide PAN details while purchasing gold worth of Rs. 2 lacs whether in cash or cheque. Generally if gold held as investment assets, are sold within three years then short term capital gain on the profit is levied at normal rates (i.e. max 30%) and if sold after three years then long term capital gain is levied on the profits @ 20%. Further, Government have introduced ‘Income Disclosure Scheme, 2016’ through this black money, Gold, Immovable property, etc can be converted into further liquidity into the market by paying onetime Tax, Interest and Penalty in toto of 45%. Thus gold laying in Black can be converted into White by Tax payers.
Arjun: Krishna, Government has introduced Gold Bond Scheme, what are the features of such scheme?
Krishna: Arjuna, under this new scheme, one can purchase Gold Bonds instead of physical gold from Banks with interest rate of 2% to 3% which is tax free under Income tax law. Further, as pronounced in the recent budget (i.e. union budget 2016), the long term capital gain out of this on redemption only to be tax free. Gold Bonds will be issued in value of gold in rupees and as per denominated in grams of gold. This investment shall be of 2 grams to 500 grams for the year. Period of investment would be of 5 to 8 years and on maturity return of investment would be as per the rate of gold applicable as on date. Thus Instead of Physical Gold, people can invest in Gold bonds, and the money collected by Banks can be used in Economy of India.
Arjun: Krishna, what is ‘Gold Monetisation Scheme’?
Krishna: Arjuna, to use the ideal gold lying in the lockers of Citizens of India, this scheme has introduced. This scheme will allow people to earn regular interest on gold. It is a gold savings account which will earn tax free interest for the physical gold that people deposit in it. Further, capital gain out of this scheme also tax free only on maturity. Gold can be deposited into the banks for range from 1 year to 15 years. On maturity, investor would get gold coin or gold bar as per the applicable value as on date of maturity. Thus Gold lying ideal with people can be brought in Economy of India by Banks who collect it.
Arjun: Krishna, what we shall learn from various gold schemes and provisions under the law?
Krishna: Arjuna, when Golden Bird take away black money, it recollect the Hindi proverb, say, ‘Ab pachatae hoot kya , jab chidiya chug gayi khet’ which means, why repent now, when the bird has already eaten the crop. Thus “Sone Ki “Chidiya” ko Tax ki “Bediya”. To overcome this, Government have introduced preventive measures like aforesaid schemes and provisions under the various laws to curb black money and eliminate tax evasion involved in jewellery transactions. This would help in appropriate and legal use of gold investment which will lead to become India again as a golden bird (Sone Ki Chidiya) like older era. This is true fact that in todays’ world a common man is still preferred to invest in gold. Let’s see what happens in future to this jewellery business.