1. Jewellery as a Capital Asset
Jewellery -- including gold ornaments, diamond rings, pearl necklaces, platinum chains, and all forms of precious metal ornaments -- is explicitly listed as a capital asset under Section 2(14) of ITA 2025. Unlike agricultural land (which may not be a capital asset), jewellery is always a capital asset. This means any sale of jewellery generates taxable capital gains. With many Indian families holding significant jewellery wealth accumulated over generations, understanding the tax treatment is important both for current planning and estate management.
2. Holding Period for Jewellery: 24 Months
For jewellery (and other movable capital assets other than listed securities), the Long-Term Capital Gains threshold is 24 months:
- Held more than 24 months: LTCG
- Held 24 months or less: STCG (taxed at slab rate)
- Unlike listed equity (12 months), jewellery needs the longer 24-month period for LTCG treatment
- Calculating the holding period for ancestral or inherited jewellery: combined period (from when the family member who gifted or bequeathed it acquired it)
3. LTCG Tax Rate on Jewellery: Budget 2024 Change
Budget 2024 changed the LTCG rate for all assets other than equity (Section 112 assets):
- Jewellery acquired BEFORE 23 July 2024: grandfathering option -- choose between 12.5% without CII indexation OR 20% with CII indexation -- whichever gives lower tax
- Jewellery acquired ON OR AFTER 23 July 2024: only 12.5% without indexation
- No STT on jewellery transactions (unlike equity) -- so no Section 112A concessional rate; standard Section 112 applies
4. Cost of Acquisition for Jewellery
Determining the correct cost is often the most challenging aspect of jewellery capital gains:
- Purchased jewellery: actual purchase price (with GST/making charges if capitalised)
- Inherited jewellery: original cost to the ancestor. If purchased before 1 April 2001: FMV on 1 April 2001 can be taken as cost (FMV determined by a registered valuer)
- Gifted jewellery from relative: original cost to the donor (inherited cost)
- Gifted jewellery from non-relative (and taxed as Other Sources): the FMV at gift date (which was taxed) becomes the cost
- Self-made or custom jewellery: cost of raw gold/gems plus making charges
5. The 1 April 2001 FMV Option: Valuable for Old Jewellery
For jewellery acquired before 1 April 2001 (including inherited pieces with no clear original purchase record), taxpayers can take the Fair Market Value on 1 April 2001 as the cost of acquisition:
- FMV on 1 April 2001 for gold: approximately Rs 4,400 per 10 grams
- FMV for diamond jewellery: requires a registered valuer certificate
- This FMV base significantly reduces taxable capital gains on very old jewellery
- Additionally, for pre-July 2024 jewellery: CII indexation applies from 2001-02 (CII=100) to the year of sale -- further reducing taxable gains
6. Inherited Jewellery: No Tax on Receipt, Capital Gains on Sale
Jewellery received through inheritance (by will or succession law) is not taxable at the time of receipt -- there is no estate duty or inheritance tax in India. However, when the heir sells the jewellery:
- Cost: original cost to the deceased (or FMV on 1 April 2001 if earlier)
- Holding period: combined period (deceased period plus heir period) -- often results in very long holding, well above 24 months, ensuring LTCG treatment
- The very long holding period means grandfathering applies and indexation from 2001 is likely to significantly reduce gains
7. Gifted Jewellery: Double Consideration
When jewellery is gifted:
- Gift from relatives: exempt from income tax on receipt
- Gift from non-relatives above Rs 50,000 aggregate: taxable as Other Sources income at FMV on receipt date
- Cost for future capital gains: if gift was from a relative -- original cost to the donor; if from non-relative and taxed as Other Sources -- the FMV at receipt date becomes cost
8. Practical Example: Ancestral Jewellery Sale
Illustrative only. Sita inherits gold jewellery from her grandmother (originally purchased in 1985 for Rs 50,000). The jewellery weighs 500 grams. Sita sells in January 2027 for Rs 40 lakh.
- Cost: FMV on 1 April 2001. Gold price on 1 April 2001 = approximately Rs 4,400/10g = Rs 440/gram. 500 grams x Rs 440 = Rs 2.2 lakh
- Jewellery purchased before 23 July 2024 (by grandmother in 1985): grandfathering applies
- Option A (20% with indexation): Indexed cost = Rs 2.2L x (380/100) = Rs 8.36L; Gain = Rs 40L - Rs 8.36L = Rs 31.64L; Tax = 20% x Rs 31.64L = Rs 6.33L
- Option B (12.5% without indexation): Gain = Rs 40L - Rs 2.2L = Rs 37.8L; Tax = 12.5% x Rs 37.8L = Rs 4.72L
- 12.5% without indexation wins here: Rs 4.72L vs Rs 6.33L
9. Wealth Declaration: Schedule AL and Jewellery
For taxpayers with income above Rs 50 lakh, jewellery must be declared in Schedule AL (Assets and Liabilities) of the ITR:
- Report value of jewellery held
- The CBDT has notified allowances for unexplained jewellery: married woman Rs 500g; unmarried woman Rs 250g; male member Rs 100g
- Jewellery beyond these limits without explanation of source invites scrutiny
- During income tax search: gold jewellery not exceeding these limits is not seized as unexplained income
10. GST on Jewellery Purchase
From a cost perspective, GST at 3% on gold jewellery and making charges at 5% are levied at the time of purchase. These GST charges are part of the total purchase cost and should be included in the cost of acquisition for capital gains computation. Always keep purchase invoices showing the GST breakdown -- essential for accurate cost computation years later when selling.
11. Diamond and Precious Stone Jewellery
Diamond and gemstone jewellery valuation for capital gains requires a valuer certificate:
- FMV on 1 April 2001 (if needed): must be certified by a registered valuer under the Valuation Rules 2018
- Cut, clarity, carat, and colour of diamonds significantly affect FMV -- a general percentage of current value is insufficient
- For high-value diamond jewellery: obtain a GIA/IGI certificate and a registered valuer report
12. Why TaxClue
Jewellery capital gains -- especially for ancestral pieces with unclear original cost, FMV certificates, grandfathering option analysis, and Schedule AL compliance -- require meticulous documentation. TaxClue helps compute capital gains on jewellery and ensures accurate ITR reporting. Contact us under ITA 2025.