Though there is no legal restriction as to how much gold you can hold, the Central Board of Direct Taxes (CBDT) in its circular dated 11-05-1994 instructed officials not to seize gold ornaments and jewellery up to certain limits. These limits are 500 grams for a married lady, 250 grams for an unmarried female and 100 grams for each male member of the family. Let us understand the underlying message of this circular and the care one needs to take in the matter.
This circular was issued to avoid disputes which arose during income tax raids, where the tax officials have authority to seize any asset including jewellery. The circular instructs the income tax officers not to seize any gold jewellery within the limits specified in the circular irrespective of standard of living and status of the person raided. This circular, however, does not restrict the quantity of gold jewellery and ornament which one can own as long as it is acquired from know sources of income or the source gets explained. Please note that these instructions cover only gold ornament and jewellery and not gold coins, gold bars and diamond or other jewellery. Jewellery or ornament of non-members of the family found can also be seized and taken away.
Gold jewellery can either be bought by yourself or can also be one which is received as gift or is inherited by you. So in case of inherited gold jewellery if you are able to prove it with documentary evidence like a will supported by wealth tax return or income tax returns of the deceased person, the income tax officials may not seize the inherited jewellery. Likewise in case of gifts of gold jewellery received, similar documents of the donor need to be preserved by you.
The circular in no way legalises owning of gold jewellery within the limits mentioned in the circular. So even if tax officials do not seize your jewellery, you are still obliged to explain the source its acquisition.
For jewellery purchased out of your tax paid money, you need not worry if you are able to prove how the jewellery came into your possession. My advice would be to preserve all the purchase bills of the jewellery. Even if the jewellery purchased by you has been exchanged, it is better if you preserve all the invoices for labour charges along with the invoice of the original purchase. The jewellery need not necessarily be bought through cheques or credit/debit cards. It can be purchased by cash. Even if the invoices are not available, your income should be sufficient to justify accumulation of jewellery.
Though the wealth tax has been abolished very recently, if you have ever filed wealth tax returns for any year up to March 31, 2015 listing these gold jewellery, coins and bars, the source of such items prima facie gets explained.
The author is a tax and investment expert