Things you should know before selling your gold to buy property in India

    In the countries like India, buying property and carrying gold both are regarded as a sign of prosperity. But the situation has come to a point where many are now looking to sell their gold to buy property.

    As we all know, it is not easy to find the right kind of property at the right price. To ensure that you get your hands on the right kind of property, you need to do thorough research before going ahead with your purchase. In this article, we are going to discuss the important topic of selling your gold to buy property in India.

    Most of us hold some amount of gold in physical form (coins or Jewellery) which is inherited or received as a gift from our parents or relatives, while few of us are aware of financial instruments (such as gold ETFs or gold funds). If you are facing a liquidity crisis and want to sell your gold (in the form of gold coins or Jewellery) to buy a flat or plot of land, you should keep the tax aspect in mind. As precious metals are capital assets, you will be liable to pay capital gains tax if you sell your gold.

    Note: There is no tax if you have inherited gold or received gold as a gift from blood relatives, but when you sell it, you are liable to pay capital gains tax in case of profits. Let’s understand how the tax on capital gains is calculated in the case of inherited or gifted gold.

    If you have held the yellow metal for a period of less than 36 months, then any profit made on its sale will be considered short-term capital gains and will be taxed at your applicable income tax rate. For gold held for more than 36 months, it is considered as long-term capital gains and the tax will be only 20% after indexation.

    To calculate capital gains or losses, you must first determine the cost of purchase. In the case of inherited gold or physical gold received as a gift, the cost of acquisition is that of the parent or relative from whom it was inherited. Therefore, receipts for their purchases will be required.

    The cost of acquisition for inherited gold or gold acquired as a gift would be the cost price paid by the individual from whom such gold was inherited. Furthermore, if the person from whom such gold is inherited or received as a gift acquired the gold prior to 1 April 2001, the fair market value (FMV) as of 1 April 2001 may be included instead of the actual cost of the said gold.

    No tax is levied on the receiving of gold as a gift from a blood relative, such as parents or siblings. However, if you get a gift from a non-relative worth more than $50,000, you will be taxed under 'income from other sources.'

    However, when you sell gold that was given to you as a gift, you must pay LTCG or STCG depending on the holding term.

    In both situations, whether inherited gold or gold acquired as a gift, the holding duration of the original owner will be considered to decide whether LTCG or STCG will be applicable. As a result, the holding term will be calculated from the day the original owner purchased gold, rather than the date you inherited or received gold as a gift.

    It is preferable to understand the tax implications and calculate your actual gains before selling the gold.

    The LTCG tax exemption on gold sale may only be claimed if a new home is acquired within two years of the gold sale and a new residential property is constructed within three years of the gold sale.

    Before selling your gold and planning to buy a new house, we recommend you be aware of the three tips to avoid the LTCG tax on gold sell:
  • Individuals must have to buy a new residential property within one year of time before the sale of the gold.
  • Individuals must have to buy residential property within two years from the sale date of the gold.
  • Individuals must have to start to building/constructing a residential property within three years from the sale date of the gold.
However, if the gold seller uses the entire proceeds to purchase a new home or build a new residential property, the gold seller may claim an exemption from LTCG tax.

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