Sale Or Exchange Of Inherited Jewellery Will Attract Capital Gains Tax

I have bought gold jewellery worth Rs 3 lakh from a reputed jewellery store. I paid Rs 25,000 by credit card and the balance (Rs 2.75 lakh) was adjusted as exchange value for old ornaments that I have inherited from my deceased parents. Is there any tax liability on the exchange value of inherited gold jewellery? If yes, how is this estimated? 

Answer: Capital gains liability arises when a person transfers his asset, whether under a sale or an exchange. What you are doing is exchanging the old ornaments to the extent of Rs 2.75 lakh against new jewellery. Since the transaction of exchange is also treated as transfer under the income tax laws, it will result into capital gains in your hands. 

As the jewellery exchanged was inherited by you it is presumed that the same was held for more than two years by you and your parents taken together, and thus the capital gains would be considered as long-term capital gains (LTCG). 

For the purpose of computing the capital gains on inherited jewellery, the cost for which the same was acquired by your parents will be taken as your cost. In case the same was purchased before April 1, 2001, the fair market value as on April 1, 2001 will be taken as your cost for computing the capital gains. 

The cost as determined in the above manner and reduced from Rs. 2.75 lakh will be your LTCG. You will have to pay tax at a flat rate of 12.50 per cent on such LTCG. Do note that the benefit of indexation is no long available on LTCG. 

My employer contributes 10 per cent of my basic and dearness allowance to my National Pension System (NPS) account and deducts equal amount from my salary. Will this be included in the investment ceiling of Rs 1.50 lakh or separately? 

Answer: The tax deduction for NPS is available under Section 80CCD of the Income-tax Act, 1961. Under Section 80CCD (1), the contribution of the taxpayer is eligible for deduction up to Rs. 1.50 lakh as per the limits laid down under Section 80CCE which covers the various items of Section 80C, 80CCC and 80CCD(1). This deduction is restricted to 10 per cent of salary for salaried and 20 per cent of the gross total income for others.  

Additionally, Section 80 CCD (1B) allows an exclusive and additional deduction of Rs. 50,000 for contributions to NPS over and above the one available under Section 80CCD (1). The restriction of 10 per cent and 20 per cent does not apply to contributions made under Section 80CCD (1B).  

Contribution made by employer is not covered under Section 80CCE. As long as the employer’s contribution is within the limit of 10 per cent of the salary, the entire contribution by the employer is eligible for deduction under Section 80CCD (2) without any absolute monetary limit as long as the aggregate of contribution by employer towards Employees’ Provident Fund (EPF), NPS and superannuation taken together does not exceed Rs 7.50 lakh in a year. The amount of employer’s contribution is first added to the employees’ income and the same gets deducted under Section 80CCD (2). 

The author is a tax and investment expert and can be reached on jainbalwant@gmail.com 

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)