Gold Holding Limit as per Income Tax Laws post Demonetisation

 

Gold Holding Limit as per Income Tax Laws post Demonetisation

After demonetization made inroads to the Indian economy and choked many black money holders, a number of rumours started floating around. Once such rumour that almost freaked out every single Indian is that gold jewellery will now come under heavy taxation and this will include even ancestral jewellery.

Gold Holding Limit as per Income Tax Laws post Demonetisation

Where did this panic come from?

The source of this panic is a statement issued by the presiding government which stated that during search operations conducted to catch black money by the Department of Income Tax, officials will not seize ornaments and jewellery made of gold if:

  • Each married woman in the family has up to 500 grams of gold jewellery.
  • Each unmarried woman in the family has up to 250 grams of gold jewellery.
  • Each male member in a family has up to 100 grams of gold jewellery.

This statement came after the Income Tax Act was amended by passing a bill in the parliament, which made up harsh additions to income tax raid clauses.

It is because of this statement that people panicked and the rumours surfaced that now the government will start seizing gold jewellery stashed at home or in lockers.

Has government come up with any clarification?

After the rumours spread like wild fire, the Central Board of Direct Taxes came to the relief of hundreds of thousands of Indians. The Second Amendment Bill on Taxation Laws was passed through Lok Sabha on November 29, 2016. The bill further fastened the shackles on black money holders by increasing the tax and penalty percentage to 85% if the undisclosed income is caught and seized during an income tax raid.

However, the raid issue, dealt with in the amendment, trickled down into the field of jewellery in form of rumours. The Central Board of Direct Taxes dispelled the rumour and stated that the amendment bill has not made any changes to the provisions for taxation on jewellery.

CBDT stated that the government clearly stated that all the amendments that have been introduced were designed specifically for black money and the hoarders of black money should be very concerned about the same. However, government did clarify that if:

  • Gold or jewellery is purchased using disclosed income, it will not be taxed under the existing laws and / or under the introduced changes.
  • Gold or jewellery is purchased using agricultural income (which is exempted income), it will not be taxed under the existing laws and / or under the introduced changes.
  • Gold or jewellery is purchased using savings that have been reasonably made using disclosed income, it will not be taxed under the existing laws and / or under the introduced changes.
  • Gold or jewellery that has been inherited will not be taxed under the existing laws and /or under the introduced changes.
  • Gold or jewellery that has been acquired from any other source that can be properly explained will not be taxed under the existing laws and / or under the introduced changes.

In case you are unable to grab this information in the format above, the quick table below will help you understand which gold / jewellery will be exempted from taxation:

Sl. No. Gold / jewellery acquisition source Taxable under existing laws Taxable under amended laws
1. Disclosed income No No
2. Exempted income such as agricultural income No No
3. Savings made from reasonable disclosed income No No
4. Inherited No No
5. Any other source which can be properly explained No No

Any other clarification?

While the Central Board of Direct Taxes made some clarification, similar clarifications came from Finance Ministry as well. A Tweet was released by Ministry of Finance which properly clarified the position on taxation on gold / jewellery.

Thus, the rumours that have been floating around that gold jewellery or ornaments which are held in possession by individuals and kept in house or bank lockers will be taxed is completely baseless. However, it is true that if the government determines that the gold thus held is basically bought out of black money, severe actions can be expected. So, government will not be opening your gold lockers and neither with the Income Tax Officers storm into your house simply to seize your gold jewellery and ornaments in case they exceed the said limit. As said, there may be factors like family traditions, heirloom etc. which can contribute to higher amounts of gold.

Important question: Why did people start panicking regarding their gold?

For us, the common folks, demonetization was a big shock. Especially for black money holders, it was surely a terrible thing. However, when we look into the past steps of the government, this step was very well planned out from the beginning and the government has been taking one step at a time to reach this stage. The Prime Minister and his cabinet of ministers did a number of things in the past to deal with black money issue in our country. They even issued explicit warnings that those who do not participate in measures like voluntary asset declaration, curbing tax evasion etc., the government will take severe steps against them. So, this decision for demonetization was not really out of the blue. The government did give hints that it was up to something really big. Here are some of the measures that the government started taking way before the demonetization took place:

  • Pradhan Mantri Jan Dhan Yojana – This was a step taken by the Prime Minister to improve and increase financial inclusion of the Indian citizens who are plagued with financial blackouts for most of their lives while the elite class of the society enjoy the fruits of financial plumpness. The yojana was introduced back in August 2014 and as of date, 26 crores Jan Dhan accounts have been opened.
  • After Jan Dhan yojana, the PM came up with what is known as the IDS or the Income Disclosure Scheme. It was an amnesty scheme for hoarders of black money, who would be given immunity if they declared their black money and pay 45% taxes. Not everyone participated and many people thought that just like the previous governments, this government will not take any harsh steps. This scheme ended on 30th September, 2016.
  • After the IDS ended, the government took it to the next level and demonetized INR 500 and INR 1000 currency notes. That was really harsh.
  • Post demonetization, government decided to give yet another chance to hoarders of black money and introduced the Pradhan Mantri Garib Kalyan Yojana, which is another amnesty scheme under which black money hoarded can earn immunity against various laws if they participate and if they don’t, they might be prosecuted.

Government has now warned that even harsher steps will be taken against black money hoarders in the coming days if they do not comply with current measures that have been introduced. So, does that mean that government will be taking hard steps against people who have gold jewellery and ornaments? Will government’s focus will now switch to gold and real estate?

In case you didn’t know, as of now, Indians have collectively hoarded 20,000 tonnes of gold. If this gold is valued at the current market price, the total worth of all the gold held collectively by Indians stands to INR 60 lakh crores. If we compare this with the total worth of the INR 500 and INR 1000 currency notes withdrawn from market, the gold will have 4 times the value of the value of withdrawn notes. It is not possible that the entire gold that has been hoarded by all Indians will be black money. However, some of this gold has been purchased out of black money.

Another tweet to clarify the gold rumour

Government of India tweeted through its Twitter handle ‘@mygovindia’ and busted the myth around gold taxation. This is what the tweet reads which uses the hashtag #DemonetizationMythBusted: Government does not plan on sealing bank lockers or seizing jewellery (please note that the exact text has not been copied to avoid any kind of copyright issues).

What about property e-registration?

Recently another rumour made it to the inroads of social media and this one was related to real estate. Please note that there has been no official announcement from government regarding e-registration of property and neither has the government given any statement refuting this statement. It is because of this, we will, for now, consider this as a rumour that floated on social media only.

The person who created this post is calling it as a surgical strike on real estate market to get hold of those properties which are either benaami properties or have been purchased using black money. However, do remember that PM Modi mentioned during his Goa speech that the government will go after benaami properties. However, he did not say how and when.

A brief about the new income tax bill that was passed

A new income tax (amendment bill) was introduced in the Lok Sabha. The bill was introduced in the parliament as money bill and hence, it required passing only through Lok Sabha. This bill was passed through Lok Sabha on November 29, 2016 without any debate within minutes. The purpose of the bill was to tax the money which was has been deposited in banks after demonetization was introduced and implemented across the nation. As of now the bill is with Rajya Shaba for considering the amendment of section 115BBE of the ITA (Income Tax Act). The amendment of 115BBE is proposes 60% tax on black money with additional 25% surcharge on the tax collected.

The newly passed bill states that those who declare their black money under the new yojana known as the Pradhan Mantri Garib Kalyan Yojana will be the ones with least losses and will get immunity from various laws. The highlights of the newly introduced Pradhan Mantri Garib Kalyan Yojana are:

  • 30% tax on the unaccounted income once disclosed.
  • 10% penalty on the unaccounted income once disclosed.
  • 33% surcharge on the tax collected. This surcharge is known as the Pradhan Mantri Garib Kalyan Cess.

All these charges will add up to around 50% of the total unaccounted money. However, even after collection of tax, penalty and surcharge, there will be another clause that the black money owner needs to agree upon.

Here is the clause:

The tax payer needs to pay 25% of the total unaccounted money to the government. This money will be invested in interest-free schemes and the tax payer or the black money holder will get no interest earnings from that investment. The money will stay invested for a period of 4 years. After the investment period is completed, the tax payer will get back the money. This means that at the end of 4 years, the total money that the tax payer will have out of the unaccounted money he declares today under the Pradhan Mantri Garib Kalyan Yojana is 50% of the total unaccounted money. This money will be white money and can be used by the tax payer for any purpose he or she wishes to.

What will the amendment of section 1115BBE introduce?

The only change that the bill intends to introduce in section 115BBE is to increase the rate of tax to be levied once unexplained investments in assets have been identified. Section 69, section 69A and section 69B of the ITA already have the necessary provisions for charging those assets as income. These sections have been present in the Income Tax Act since 1960s. The new bill does not intend to make any changes to those sections. The only change it wants to introduce is to increase the rate of tax on such assets.

The reason why this amendment bill has been introduced is that many black money hoarders have actually been reported as trying to pass their black money through income tax assessments by showing such undisclosed income as either income from other sources or as business income. This amendment was necessary to prevent that from happening and hence, the bill was introduced. Section 115BBE applies where the income tax assessing officer detects what is known as unsubstantiated business income or unexplained asset or cash.

Tax implications on detected unaccounted income after Presidential nod to tax amendment bill

The following table below will give a comparative study of the tax implications on detected unaccounted income as per the previous laws and the new amended laws. The reason why we are going for a tabular comparison is that it will help you understand what will happen once the unaccounted income is detected by tax assessment officer. Let us begin:

Particulars Old Provisions New Provisions
General tax as well as penalty provisions In case of under reporting, 50% will be taxed.

In case of misreporting, 200% will be taxed.

No changes have been introduced in the amended bill.
For investments, credits, cash and assets that are unexplained, the provisions for taxation as well as penalty are 30% tax under section 115BBE. There will be a surcharge and a cess deduction as well. In the old provisions, set offs, deductions and expenses are not allowed. 60% tax on unexplained income under section 115BBE. In addition, there will be a surcharge of 25% on the tax that is deducted from the unexplained income. This will take the total tax implications to 75%. As before, set offs, deductions and expenses are not allowed. This happens under section 115BBE.

In case the assessing officers is the one who determines the undisclosed income, section 271 AAC will kick in and an additional penalty of 10% will be imposed on the total unaccounted income. This will be over and above the 75% tax incidence.

Applicable penalty for cases where search and seize operations are conducted (income tax raid) Penalty in this case will be applicable as per section 271 AAB. The rules of penalty are:

 

(a). If the person admits to the black money, returns the amount and pays the necessary taxes, 10% of the unaccounted income will be taken as penalty.

(b). If the person does not admit to the black money but returns the amount and pays the necessary taxes, 20% of the unaccounted income will be taken as penalty.

(c). For any other case, other than the two mentioned, 60% of the unaccounted money will be taken as penalty.

Penalty in this case will be applicable as per section 271 AAB. But, the penalty will be imposed as per newly amended rules. The rules of penalty are:

 

(a). If the person admits to the black money, returns the amount and pays the necessary taxes, 30% of the unaccounted income will be taken as penalty.

(b). For any other case, other than the one mentioned above, 60% of the unaccounted money will be taken as penalty.

‘Search and Seizures’ also known as ‘Income Tax Raids’

Of late we have been hearing the term, ‘search and seizure operations’. What is that? It is actually a procedure wherein the legal systems in India (whether common law or civil law) authorizes police or other authoritative bodies in India to conduct a thorough search on the property of a person and confiscate any evidence they may come across in case the police or the authoritative bodies suspect that the person in question has committed a crime.

When such search and seizure operations are carried out by the agents or officers of Income Tax Department, those operations are usually referred to as Income Tax Raids or simply Raids. For corporates, people who earn high and even for business, Income Tax Raids have always been nightmares. Such raids hunt for black money or unaccounted money and once found, the authorities not only seize the black money but also impose heavy penalties on the offenders. Such raids can lead to imprisonment, mental harassment and of course, they harm the image of the offenders and the business entities.

Here are a few important things you need to know about the search and seizure operations conducted by the Income Tax Department:

Time of operation Usually such raids are conducted during mornings.
Who conduct the operation The investigation wing of the Income Tax Department will send a team of officers and other members to conduct the raids.
Search warrant A search warrant is always carried by the search team to show the authenticity of the raid.
Where is the check conducted? All premises in India where the assesse conducts his or her business is thoroughly searched by the raiding team. Even the residential premises of the assesse including all key personnel of the business, which include company directors, partnering firms etc. Under such circumstances, the raid may continue for 2 to 3 days.
In addition to that, the residences of business associates, close friends and close relatives can also be raided if deemed necessary by the raiding team or the Income Tax Department.
What all are checked by the raiding team? The raiding team can search everything from cash to jewellery to stocks, books of accounts, any loose paper they may come across.
Phones and mobiles The search team will strictly prohibit the use of mobile phones or telephones during the raids.
Statements The search team can take statements from management and personnel. Such statements can be taken from guests, customers, visitors or anyone else who is present during the search within the premises which is being searched.
Gold jewellery and other ornaments The search team will not seize any gold jewellery or ornament as long as the following conditions are satisfied:

(a). Married women have no more than 500 grams of gold jewellery each.

(b). Unmarried women have no more than 250 grams of gold jewellery each.

(c). Men in the house do not have any more than 100 grams of gold jewellery each.

If there is additional gold jewellery and ornament, the search or raiding officer will be at discretion to either seize or leave the same. If the search officer thinks that the additional gold jewellery is from sources like agricultural income, family heirloom etc. the officer will usually leave that. However, if the officer suspects that the additional gold is bought using black money, the officer may seize the same.

What is the status of income tax raids so far?

The Income Tax Department has been working hard to take care of black money cases. Post demonetization, these raids have increased significantly and several cases have come forward where crores of black money have been seized by the income tax officers. A very disturbing case came forward where two businessmen in Bengaluru were seized with 5.7 crores of cash in new currency notes.

The exact status of these raids after demonetization is difficult to say now because the correct figures can be assessed only after March 31, 2017. However, as per official figures, the following data has come out, which shows the amount of unaccounted income and assets caught through Income Tax Raids during three fiscal years:

Fiscal Year Number of searches / raids Undisclosed / Unaccounted Income Seized assets
2013-2014 569 INR 10,791.63 crores INR 807.84 crores
2014-2015 545 INR 10,288 crores INR 761.70 crores
2015-2016 445 INR 11,066 crores INR 712.68 crores

There are various ongoing raids for the fiscal year 2016-2017 and after demonetization, the number of raids have increased manifolds. News of such raids are rampant and many people including doctors, businessmen etc. are becoming victims of the Income Tax Department. They are getting what they deserve and yes, black money should be out of this economy. What do you think?

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