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Selling inherited gold? Pay tax!

February 10, 2010 14:22 IST
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Your mother gave you those ancestral bangles at the time of your marriage as streedhan. Now you want to sell it. Then be ready to shell out capital gains tax. This tax needs to be paid even though you don't know at what price your mother had purchased the ornaments.

But how do you know what is the capital gains tax rate applicable? To do this, you need to decide whether the gold ornament is a long term or short term asset.

To decide whether the gold is long or short, find out how long have held it. If your holding period is over 36 months, it is considered as a long term asset, and accordingly long term capital gains (LTCG) tax rate is charged.

If you have held it for less than 36 months, then they are considered as short term capital assets and you end up paying long term capital gains tax.

LTCG is computed as follows:

LTCG tax = (Selling price of ornaments – Indexed price of purchase) x 20 %

As per tax laws, you can derive benefit from increasing prices or inflation. This allows you to adjust the actual purchase price against the latest price. As a result, your profit adjusted against inflation will be much lesser than the absolute profit.

To compute the indexed price of purchase, here is the formula:

Indexed price of purchase = Original purchase price x (CII for the year sold/ CII for the purchased)

CII is the Cost Inflation Index and is declared by the income tax.

Original purchase price for inherited assets

Date and price of purchase for preceding owner = Date and price of purchase for you

For example, if your mother had purchased the ornaments on November 20, 1995 at the price of Rs 80,000, then your date of purchase is considered as November 20, 1995 and your purchase price is Rs 80,000.

However had your mother purchased the ornaments before 1st April, 1981, then the price of the ornaments is the fair market value (FMV) prevalent on April 1, 1981. visit a government authorized valuer in order to get the FMV.

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