💎 Gold, Diamonds & Jewellery: Wealth Asset or Tax Trap?

A Complete & Practical Taxation Guide for Indian Taxpayers

In India, gold and jewellery are not just investments — they are emotion, tradition, security, and status.

From wedding jewellery to inherited gold, from bullion investments to jewellery businesses, precious metals quietly sit in almost every Indian household.

But here’s the uncomfortable truth 👇

👉 Most tax notices related to jewellery arise not because of tax evasion, but because of ignorance.

This blog breaks myths, explains latest laws, and tells you what the Income Tax Department and GST authorities actually look at.

🟡 Why Gold & Jewellery Attract High Tax Scrutiny

Gold and diamonds have three characteristics that make tax authorities alert:

1. High value, easy liquidity

2. Traditionally cash-driven transactions

3. Poor documentation culture

   
   

That’s why jewellery cases often trigger:

• Income-tax scrutiny

• Cash penalty proceedings

• GST investigations

• Search & seizure disputes

• 
  

Let’s decode everything — legally and practically.

1️⃣ GST on Gold, Silver, Diamonds & Jewellery (Latest Law)

✔ Applicable GST Ratess

As per Notification No. 01/2017 – Central Tax (Rate):

Particulars	GST Rate
Gold / Silver / Platinum	3%
Jewellery (including diamonds)	3%
Making Charges	5% (Service)

📌 Critical Compliance PointA jewellery invoice must split:

• Value of gold/diamond

• Making charges

A single consolidated value is a GST risk.

✔ Input Tax Credit (ITC)

• Allowed only for business purposes

• Blocked for personal consumption

• Frequently disputed during GST audits

  
  

2️⃣ Buying Jewellery: Cash, PAN & Reporting Rules

This is where most genuine buyers unknowingly make mistakes.

🚫 Cash Payment Rule (Section 269ST)

• Cash payment above ₹2,00,000 → Illegal

• Penalty = 100% of cash amount

• GST bill does NOT protect you

📌 Example:If you buy jewellery worth ₹5,00,000 and pay ₹3,00,000 in cash →👉 Penalty can be ₹3,00,000, even if GST is paid.

🪪 PAN Requirement

• PAN mandatory if purchase exceeds ₹2,00,000

• Jeweller reports transaction via SFT to Income Tax Department

💡 Many notices start years later through data analytics, not raids.

3️⃣ Selling Gold or Jewellery: Capital Gains Explained

Selling gold is not tax-free, even if it’s old family jewellery.

⏱ Holding Period

• Up to 36 months → Short Term Capital Asset

• Above 36 months → Long Term Capital Asset

💸 Taxation

• STCG → Taxed at normal slab rate

• LTCG → 20% with indexation (Section 112)

📌 Applies to:

✔ Jewellery

✔ Gold bars & coins

✔ Diamonds

✔ Silver articles

⚠️ Common mistake

“I exchanged old jewellery for new one, so no tax.”

❌ Wrong.Exchange = sale + purchase, capital gains still apply.

4️⃣ Jewellery Received as Gift: When Is It Tax-Free?

Section 56(2)(x) governs gift taxation.

✅ Fully Exempt Gifts

• From specified relatives

• On marriage

• Through will or inheritance

• From HUF

❌ Taxable Gifts

• From non-relatives

• Aggregate value exceeds ₹50,000

• Taxed as Income from Other Sources

• Value taken at Fair Market Value (FMV)

📌 Even gold gifted by a friend or distant relative can become taxable income.

5️⃣ Jewellery Business: Trader, Manufacturer & Job Work

Jewellery is one of the most scrutinised businesses in India.

📊 GST Compliance

• GST registration practically unavoidable

• Output GST:

  • Jewellery: 3%

  • Making charges: 5%

• Stock mismatch is a red flag

📘 Income Tax Risks

• Stock valuation disputes

• Wastage percentage justification

• GP/NP ratio comparison

• Cash sales tracking

🧾 TDS Obligations

• Job work attracts TDS u/s 194C

• Non-compliance leads to disallowance + interest

6️⃣ Search & Seizure: How Much Jewellery Is Protected?

Many people fear raids unnecessarily.CBDT provides relief through Instruction No. 1916 (still valid).

Family Member	Jewellery Not Seized
Married Woman	500 grams
Unmarried Woman	250 grams
Male Member	100 grams

📌 Subject to:

• Family customs

• Social status

• Past disclosures

Important:

👉 Non-seizure does not mean tax-free.Source of acquisition can still be questioned.

⚠️ Top Mistakes That Trigger Notices

❌ Buying jewellery in cash

❌ No purchase invoice

❌ No explanation of source of funds

❌ Ignoring capital gains on old jewellery

❌ Mixing personal jewellery with business stock

🧠 Final Expert Advice

Gold protects wealth.But undocumented gold destroys peace of mind.

Tax laws around jewellery are clear, but unforgiving. With correct documentation, disclosure, and planning, gold remains a safe asset. Without it, even genuine wealth can turn into litigation.

🔍 How a Professional Advisor Adds Value

A good tax advisor doesn’t just calculate tax —

✔ Structures purchases

✔ Documents inheritance

✔ Plans capital gains

✔ Protects during scrutiny