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What Are Tax Liabilities On Ancestral Or Inherited Gold?

People often confuse tax liability on the gold purchased from the market and inherited from the ancestor as the same, but that’s not true!

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Amit Sethi
January 19, 2024
Tax Liability on Inheritance Of Gold

Tax Liability on Inheritance Of Gold

Gold has always been one of the most popular investments in India. The popularity of gold has sustained for the past several centuries and more. The journey of gold continues from one generation to another by changing hands as new generations inherit them from their ancestors. When there is a capital gain on gold purchased from the market and sold again in the future, they are subject to income tax at rates depending on whether the capital gain is short-term gain or long-term capital gain. However, what happens if you have not purchased the gold but inherited it from your ancestors and then sell it in the market? Are they subject to Tax liabilities, too? Let’s explore how inherited gold is taxed under various situations.

Also Read: Do Seniors Need To Pay Advance Tax And How To Calculate It?

At What Price Do You Inherit The Gold?

When you inherit the gold, you don’t have to pay the price for it, but you have to ascertain the acquisition value of your gold based on its purchase price by your ancestor. For gold purchased before April 1, 2001, the fair market value of gold as of April 1, 2001, has to be considered to determine the acquisition cost. If you sell the gold after holding it for more than 36 months (Including the owner and inheritor’s holding period), the gain on such a transaction is termed long-term capital gain (LTCG). Gain earned on sell of gold when the holding period was less than 36 months is termed short-term capital gain (STCG). Along with LTCG, you can also get the indexation benefit to reduce your tax liability further. Under indexation, the acquisition cost is adjusted according to the applicable cost inflation index to minimize the taxable LTCG.

Tax On Gold Based On How Long You Hold The Gold In Your Possession

The LTCG on gold sale proceeds is taxed at a 20 per cent rate after the indexation benefit. So, even if you fall in the highest tax slab, the LTCG will be taxed at a 20 per cent rate only. STCG on the sale of gold is taxed at the applicable slab rate of the inheritor.

Also Read: How Are Retirement Benefits Taxed?

Things To Keep In Mind

If your gold possession comes under the short-term category and you need money urgently, instead of selling your gold, you may pledge it with the bank to get a loan against gold and avoid the short-term capital gain tax. It is important to note here that inheriting ancestral gold is not taxable in the hands of the inheritor until it is sold in the market. Also, if you get the inherited gold exchanged for new jewellery, it won’t be a taxable transaction because no capital gain happens on it.

The author is an independent financial journalist.

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