Selling gold to raise cash? Know how to sell and the tax implications

Ideally you should sell it to the jeweller you bought the gold from, or a reputable retailer to get a better rate

With gold prices breaching the Rs 50,000/10 gm-mark and hitting a record high, a lot of Indian families are seeing a great opportunity to raise some money by borrowing or selling jewellery bought or gifted to them ages ago. Some may even feel the need to do so because of the situations like Durgesh Rao (name changed on request) is facing. Rao, who is in his thirties, came to Mumbai from Europe during mid-March to meet his sick parents. After getting stuck due to the lockdown, he lost his job. “By selling some of the family gold, I can go back to Europe and restart life,” he says. But selling isn’t as easy as buying. 

Selling physical gold: Ideally, you should sell to the same jeweller it was bought from because he/she will give the similar rate for the same purity at which he/she sold. The additional advantage is that even if you don’t have a bill, the jeweller will have a record. But it’s not possible always to do so because much of the inherited jewellery may have been bought somewhere else or decades back. In such circumstances, contact any prominent and reputed jeweller. Aditya Pethe, director, Waman Hari Pethe Jewellers, says: “You can get gold ornaments, coins, and bars bought from other jewellers as well. A hallmark certificate will be better, but even if you don’t have it, there are machines/processes in place to check the purity of gold.”

Surendra Mehta, secretary of Indian Bullion and Jewellers Association (IBJA), says: “In addition, you will have to give your PAN and Aadhaar cards to the jeweller if you are selling physical gold worth more than Rs 10,000. While having a purchase bill always helps, you can sell it even without a bill after giving these documents, along with an undertaking stating that the gold belongs to you. This is to verify ownership and avoid the sale of stolen goods.”

Most people prefer going to the neighbourhood jeweller because the process is easier, and gold can be sold without a receipt and hallmark. But there is a risk of getting a lower price due to manipulation. jewellers say that there would be a price difference of at least 3-4 per cent. 

 

 

Jewellers have different methods to check the purity of gold such as the acid test, electrical conductivity test or XFR test. Mehta says: “These tests hardly cost any money. If you think your jeweller is not quoting the right purity, you can get the test done at various centres.” There are several such centres in big cities and towns. It’s always better to approach a few jewellers to see who offers the best price, as some might even provide even 10-15 per cent less.” Remember, there is no standardised method to get to know the exact selling. Several jewellers and gold loan non-banking financial companies such as Muthoot FinCorp offer door-step services also.

Take a gold loan: It will depend on the type of gold. Sameer Kaul, MD & CEO, TrustPlutus Wealth Management says: “If you have gold exchange-traded funds and sitting on reasonable profits, it makessense to sell instead of taking a loan against units.” When it comes to physical gold, taking a loan is a better option now, as you will get a higher amount at a reasonable interest rates.

Taxation of physical gold: Naveen Wadhwa, DGM, Taxmann says: “Gold is always treated specially under the Income Tax Act. As a general rule, any profit arising from the sale of personal effects is not chargeable to capital gains tax, but gold is categorised as an exception.” Adds Vivek Jalan - Partner at Tax Connect Advisory services LLP: “There is no tax in case anyone inherits gold or receives gold as a gift from blood relatives, but there is a capital gains tax when you sell it.” For gold held for less than three years, you will have to pay the short-term capital gains (STCG) tax wherein the entire gain is added to your income and taxed, according to your slab. For gold held for more than three years, the long-term capital gains (LTCG) will be taxed at 20 per cent after indexation.

Taxation of non-physical gold: For ones planning to sell exchange-traded funds and digital gold, the tax treatment is the same, except for Sovereign Gold Bonds – the instrument that was introduced by the government in November 2015 – to reduce the purchase of physical gold. Since SGBs earn interest income in the interim invested period, they are taxable under the head of ‘income from other sources’. “But no TDS/ TCS is levied on interest income. Therefore, one has to remember to offer this income for taxation when one files his income tax return,” says Jalan. If any capital gains arise at the time of maturity after eight years, those will be exempted from tax. The other tax rules are same. 

The maths of capital gains: In the case of physical gold, you need to determine the cost of acquisition. In case of inherited gold, Archit Gupta, CEO, Cleartax explains that the cost of acquisition for the seller is the same cost at which the original owner acquired it. But many times there won’t be a bill because the gold was bought decades back. “If that cost is not available, the fair market value (FMV) should be determined as on the date of acquisition by the original owner, as on April 1, 2001, whichever is later. The period of holding for calculating long term or short term shall include the period for which the original owner held it,” adds Gupta. In case the gold was gifted to you, the cost of acquisition is determined from the 

person who made the gift. The other guidelines are similar.