My wife got some ornaments during our marriage in 1987 and some more at the time of her mother’s death. My father gave some ornaments to her and some to me as well. These are also quite old and date back to the 1970s.

Now, I want to sell most of my father's gifted items and some of my wife's ornaments and would like to invest in a small residential flat in the names of my major daughters.

What will be the tax implications on sale of jewellery and investment of the sale proceeds in an apartment?

SVB Rao

As per Income-tax laws, jewellery is considered a capital asset for income-tax purposes. Long-term capital assets are those that are held for more than three years. At the time of sale of such long-term assets, the long -term capital gains shall be computed by deducting from the gross sale consideration received or accruing on sale of the long term asset the following amounts, namely: the indexed cost of acquisition of the asset and the indexed cost of improvement; expenditure incurred wholly and exclusively in connection with such transfer.

As per the facts given, jewellery held by you or your wife qualifies as a long-term capital asset (i.e. held for more than three years) and thus, the long-term capital gain/loss on the sale of such jewellery shall be calculated as mentioned above.

The resulting gain, if any, will be subject to tax at rate of 20 per cent (exclusive of cess and surcharge).

The cost of acquisition in case of gift shall be deemed to be the cost for which the previous owner acquired it. In your case, the cost of jewellery shall be the cost at which your father purchased the same.

Further, for assets acquired prior to April 1, 1981 the assessee has the option to choose the cost of acquisition of the asset which shall either be the purchase price or the fair market value of the asset as on April 1, 1981.

As per section 54F of the Income Tax Act, 1961 (the Act), if an individual sells a long-term capital asset (other than a residential house), then long-term capital gains may be exempt from tax in case the sale proceeds are invested in a residential house property, subject to satisfaction of other prescribed conditions. This exemption is available to the assessee himself and not a third person.

In your case, if the investment in the new house is made in the name of your major daughters, the exemption u/s 54F of the Act, would not be available to you or your wife.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

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