Selling inherited gold: Will it create tax issues and how will the gains be taxed?

Taxability of inherited gold

Finding gold jewellery in a parent’s locker after their passing often raises concerns about tax scrutiny and compliance. Today's Ask Wallet Wise explains that the tax treatment of jewellery depends on two key factors: whether it’s considered a “reasonable” amount of personal jewellery and how long it was held. These factors determine capital gains tax liability and the applicable rate.

Moneycontrol's Ask Wallet Wise initiative offers expert advice on matters of personal finance and money. You can email your queries to askwalletwise@nw18.com, and we will try and get a top financial expert to address your queries.

My mother passed away recently. We found some gold ornaments in her bank locker. She has never filed an Income Tax Return (ITR) nor a wealth tax return. If I sell the gold and deposit the money in my bank account, will I face problems? How will my tax be computed?

Expert's Advice: The answer depends on various factors: the total value of the gold, whether your mother had received any inheritance, whether your father was a taxpayer and what income he declared, your mother’s age at the time of death, and whether she had any income despite not filing returns. You will generally not face any issue if the quantity of gold found in her locker appears reasonable based on these circumstances. If the jewellery was genuinely hers and it can reasonably be established that she may have accumulated or acquired it over her lifetime, there should be no problem.

Assuming the combined holding period for you and your mother exceeds 24 months, the jewellery will be treated as a long-term capital asset. You must pay tax at 12.5 percent on the long-term capital gains, calculated as the difference between your mother’s acquisition cost and the selling price. If the jewellery was acquired before April 1, 2001, you may use its fair market value as on that date as the cost.

However, if you cannot convince the assessing officer that your mother could have legitimately accumulated that much jewellery during her lifetime, you may face a tax rate of 60 percent plus surcharge, cess and interest. Penalty proceedings may also be initiated. If the intention is to convert undisclosed income (black money) into legitimate income using this route, it is strongly advised against.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.