Do you need to pay tax on inherited gold jewellery? CAs explain when you may

Did you inherit a set of gold jewellery from your parents in 2012 and you are in a dilemma whether you need to pay income tax on that?. There is a good news for you! The inheritance of gold is not considered as income under Indian tax laws, so you won’t have to pay any income tax.

But things will change if you choose to sell some part of that jewellery. You need to pay capital gains tax when you sell the inherited gold. Note that the tax is on the profit you make from selling the jewellery, not on the entire inherited gold.

But do you know how much tax you need to pay and how will it be calculated?

Chartered Accountant A. Ruchita Vaghani recently shared key insights on X (formerly Twitter) about the tax implications of selling inherited gold. Building on her points, The Economic Times has put together a detailed explainer covering when tax on inherited gold applies, how is it calculated, and what are the exemptions available under the Income Tax Act?

Gold jewellery price: Know how cost of your gold jewellery is calculated by jewellers

First let's read what Ruchita says about taxation on selling inherited gold


Tax implications of selling inherited gold
1. Nature of inherited gold
No tax at the time of inheritance
Income Tax does not treat inheritance as your 'income'

2. When does tax arise?
Tax applies only when you sell the inherited gold
Capital Gains Tax is charged
Original price paid by your graninneotrem OR
Fair Market Value (FMV) as on 1st of April 2001 (if acquired earlier)
Holding Period: Always treated as Long-Term Capital Asset

3. How is tax calculated?
Indexed Cost of Acquisition is considered (using Cost Inflation Index)
Tax Rate
20% Long-Term Capital Gains (LTCG) tax+ surcharge + Health & education cess
Example:
Sale Price-Indeved Cost of Acquisition = LTCG
LTCG × 20% (+ surch)= Tax payable

4. Exemptions & savings options
Section 54F Reinvest full sale proceeds in a residential house property (Subject to condition)
Section 54EC Invest up to Rs 30 lakh in specified Capital Gain Bonds (NHAI/REC) within 6 months
Sale receipts


ET Online spoke to Suresh Surana, Charted Accountant, and asked about key aspects of the taxation of selling inherited gold

Do you have to pay tax if you inherit gold?

Surana says, no tax will be paid at the time of inheritance. The income tax rule does not treat inheritance as your ‘income’.
He says, “Section 2(14) of the Income Tax Act 1961 (hereinafter referred as the IT Act or the Act) defines capital assets which includes jewellery such as ornaments made of gold, silver, platinum, or any other precious metal, or any alloy containing one or more of such metals. This definition applies irrespective of whether the jewellery contains precious or semi-precious stones, and regardless of whether it is worked into or sewn into wearing apparel.

“Since inherited gold falls within the above-defined category, it will be regarded as a capital asset’ for the purposes of taxation under the Indian Income Tax Laws.”

When does tax arise on inherited gold?

Surana says that a person doesn’t need to pay any tax at the time of inheriting gold; the tax liability arises only when they decide to sell it. At that point, capital gains tax comes into play. For calculating the gains, the cost of acquisition is taken as either the original price paid by the person from whom they inherited the gold or, if it was acquired before April 1, 2001, the fair market value (FMV) as of that date, he explains.

Surana further says, “Under the Income Tax Laws, inheritance is not regarded as transfer and therefore it is not taxable at the time of the receipt as it is specifically exempt under section 47(iii) from transferor perspective and under section 56(2)(x) of the Income-tax Act from the recipient’s (inheritor) perspective. Consequently, the value of inherited gold is not subject to tax upon receipt. Tax implications will arise only when the gold is subsequently sold. Any income generated from such a transfer is classified under the head ‘Income from Capital Gains’ and will be taxed in accordance with the applicable tax rates as outlined in Point 3.”

How is tax calculated on inherited gold?

When selling inherited gold, the tax is calculated by considering the indexed cost of acquisition, which is adjusted using the Cost Inflation Index to account for inflation, explains Surana.

Computation rules for inherited gold
Surana says, “For the purpose of computing capital gains on inherited gold, two critical aspects are considered, the cost of acquisition and the holding period. The cost of acquisition is deemed to be the amount at which the previous owner originally acquired the gold. However, if the gold was acquired by the previous owner prior to 1 April 2001, the inheritor is entitled to adopt the fair market value as on 1 April 2001 in place of the actual cost, if this proves more beneficial to the inheritor.

“Similarly, when determining the holding period, the law allows the inheritor to include not only their own period of ownership but also the period for which the gold was held by the previous owner. This ensures that the classification of gains whether the short term or the long term accurately reflects the total duration of the ownership of the asset, rather than being restricted to the period after inheritance.”

Tax rates applicable for selling inherited gold

Explaining the tax rate, Surana said, “ Prior to 23 July 2024, inherited gold sold within 36 months attracted short-term capital gains taxed at applicable slab rates, while holding beyond 36 months was treated as long-term capital gains (LTCG) and taxed at the rate of 20% with indexation benefit. However, with effect from 23 July 2024, the Finance (No.2) Act, 2024, has reduced the LTCG holding period to 24 months and introduced a reduced tax at 12.5% rate without indexation benefit. Short-term gains (holding up to 24 months) continue to be taxed at slab rates.”

What are the exemptions and saving options?

Surana says that taxpayers who sell inherited gold may be able to avoid paying capital gains tax if they reinvest the sale proceeds in certain ways. Under certain restrictions, the Income Tax Act offers exclusions that can lower or even completely remove the tax obligation associated with these kinds of transactions, he adds.
Surana says, “Section 54F of the Act provides that a taxpayer can claim exemption from capital gains tax on the transfer of gold if the net sale consideration is reinvested in a residential house property situated in India. The reinvestment can be made by purchasing a residential property within 1 year before or 2 years after the date of transfer, or by constructing a residential property within 3 years from the date of transfer. This exemption is subject to prescribed conditions, and the maximum deduction allowable under this section is capped at Rs 10 crores.

Reacting on Ruchita’s tweet, Surana says, “Additionally, the post incorrectly mentions that the taxpayer can claim exemption under Section 54EC as an option. In reality, Section 54EC is available only for capital gains arising from the sale of land or building. It is not applicable for gains from the sale of gold or other movable assets,” says Surana.