Capital gain tax on gold jewellery if bought in return of gold

Dear CAs, 

We we buy a new gold jewellery in return of old gold remained in family for decades, do we have to pay capitak gain tax on the return value of the gold inspite of the fact that we have a new jewellery more than the amount of that gold.

Please advise
Asked 1 year ago in Capital Gains Tax from Delhi, Delhi
Yes you need to pay capital gain tax
Shyam Sunder Modani
CA, Hyderabad
955 Answers
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  Talk to Shyam Sunder Modani
Capital gains arises when there is transfer of a capital asset. In your case, you are not transferring your old gold to anyone. You are only converting it into different ornament by paying additional money, if required. Hence, there is no capital gains on the return value of the gold.

However, when you get back money on purchase of new jewelry, as the cost of new jewelry is less than the gold you are exchanging, there is transfer of capital asset and hence,there will be capital gains. However, this does not seem to be applicable in your case, as the cost of new jewelry is more than the amount of the gold you are exchanging. 
B Vijaya Kumar
CA, Hyderabad
290 Answers
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legally speaking when you exchange old  jewellery for new jewellwery, the transaction of exchane falls within the definition of transfer under the provisions of Income tax Act. And in case you are obtaining an invoice for exchange of jewelery it means the transaction is on board, it will be safer to pay capital gains tax
however, most of the transaction of exchange are being done without invoice. 
Vijay N. Kale
CA, Hyderabad
248 Answers
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Hi
As per section 54 deduction is avaible in respect of following assets only
1. A residential House property  
2. Agriculture land which  has been   used   by   assessee himself or by his parents for agriculture purposes during last 2 yrs of transfer.
3. Investment in NHAI & REC bonds.

As gold is not covered under sec 54 for exemption...the same is taxable under capital gains.
For further queries u can reach us on modani005@gmail.com
Shyam Sunder Modani
CA, Hyderabad
955 Answers
4.9 on 5.0
  Talk to Shyam Sunder Modani
Its good that you have the benefit of advises from many CAs. Even Supreme Court has interpreted the Acts in different manners at different times. So differences in interpretations are always possible in legal and taxation issues. The best policy is to adopt prudent policies so that you will not land up in troubles. 

Any sale of gold attracts capital gains, whether short term or long term. Now the issue in your case is whether it is sale or not? 

You intend to convert your ancestral jewelry into a new jewelry to suit your present day requirements. Apart from that you don't have intention to sell your jewelry,  So the jewelry shop facilitates it by offering new jewelry and in this process collects gold from you and returns it in a new form.  Otherwise he should use the same gold given by you and make new jewelry, by charging you only for additional gold,if used, wastage on recovery of gold from your old jewelry and making charges for the new jewelry.  Now he is doing the same thing, except that he gives a new jewelry to you and collects old jewelry. As your intention is not to sell but only to get new jewelry in its place to suit your present day needs.

Now if you sell the gold to X and buy the new jewelry from Y, then it is a clear case of sale, attracting capital gains. Further if you sell the gold to X today and purchase new jewelry tomorrow, they are two different transactions and capital gains will be applicable. In your present case, it is only one single transaction. 

Now as two or more views are always possible, the best way for you to adopt conservative policy.  Ask your shop keeper to use the same gold given by you and convert it into new jewelry, so that he is rendering service and not purchasing any gold from you. You can pay only for additional gold that is used.   
B Vijaya Kumar
CA, Hyderabad
290 Answers
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  Talk to B Vijaya Kumar

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