Planning to exchange old jewellery for new? Know the income tax rules

When you sell your old piece of jewellery to buy a new one, you are meant to pay capital gains tax on the sale. It is vital to note that the sale of gold, even for the purpose of buying a new ornament, is seen as the sale of an old asset.

In Budget 2024, Finance Minister Nirmala Sitharaman amended the rules relating to capital gains. Under the new rules, any non-financial asset — when sold after more than two years of purchase — draws capital gains tax at the rate of 12.5 per cent without indexation. When the asset is sold in less than two years, it is considered a short-term capital gain, and the gains are added to the total income to be taxed at the slab rate.

Is exemption allowed?

You can, meanwhile, seek an exemption on income tax when you use the sale proceeds to buy a property. “Under section 54F, one can claim income tax exemption when the sale proceeds are used to buy a property. When the gold or other precious metal is sold to buy new assets, it is considered as a new purchase and tax is charged on the capital gain arising out of the sale,” says Chirag Chauhan, a Mumbai-based chartered accountant.

Suppose you sold gold you bought over two years ago and earned a capital gain of ₹50,000. Your tax liability on it would be ₹6,250 (12.5 X 50,000/100). You also need to pay a 4 per cent cess ( ₹250) on it, thus making it ₹6,500.

These rules came into force on July 23 with the introduction of Finance Bill 2024. “If you are exchanging old jewellery for new, it is considered as the sale of old jewellery and it comes under the purview of income tax. The tax of 12.5 per cent is applicable without indexation in case of long-term capital gain if gold is sold after July 23, 2024,” says Pratibha Goyal, a Delhi-based chartered accountant and Partner, PD Gupta & Company.

Digital gold

When you buy new jewellery, you are liable to pay 3 per cent GST on it regardless of the sale of existing jewellery or not. This is believed to be one of the reasons for the popularity of digital gold. “We are seeing strong traction for digital gold across the country. Delhi-NCR, Hyderabad and Bangalore are the top three cities for digital gold investments, comprising 22 per cent of total investments,” said Bipin Preet Singh, Co-founder and CEO of MobiKwik.

Sridharan S, founder of Wealth Ladder Direct, says, “When you buy digital gold, you save 3 per cent GST that is levied on the yellow metal. Besides, you also save on the making charges which can be as high as 10-15 per cent of the total bill.”