Capital Gains Tax on Inherited Jewellery

Legal and Valuation Considerations for Estate Planners

By Dr. Shefalika Bansal

MSME APPROVED GOLD APPRAISER
For Aspirants in Valuation, Wealth Management & Tax Planning

Inheritance of jewellery is both a sentimental and financial affair. In India, family heirlooms often carry historical, cultural, and material value. While receiving such assets does not attract tax at the point of inheritance, complexities arise when these assets are sold. For professionals engaged in estate valuation, tax planning, and wealth succession, understanding the nuances of capital gains tax and its treatment on inherited jewellery is crucial.

This article explores the Indian legal framework governing capital gains on inherited jewellery, considerations during asset division among heirs, valuation best practices, and strategic tax planning tips.

📌 1. Taxability of Inherited Jewellery

✅ Not Taxable on Inheritance (Section 56(2))

Under the Indian Income Tax Act, 1961, assets received through inheritance, including jewellery, are not treated as income. As per Section 56(2)(x), such transfers are specifically excluded from the ambit of “income from other sources.” Thus, no tax is payable at the time of inheritance, irrespective of the market value of the jewellery.

📌 2. Tax Implications on Sale of Inherited Jewellery

Once the inherited jewellery is sold, the capital gains tax provisions come into play. The sale is treated as a “transfer” under Section 2(47) of the Act.

✅ Computation of Capital Gains

Cost of Acquisition: The cost is considered as the purchase cost to the previous owner (e.g., parent or grandparent).
Indexation Benefit: If the asset qualifies as a long-term capital asset, indexation is allowed. This adjusts the cost for inflation, reducing the tax burden.
Period of Holding: The holding period of the previous owner is included. Jewellery held for more than 36 months is classified as a long-term capital asset.

🧮 Example:

If Mr. A inherits gold jewellery from his father, who bought it in 1980 for ₹50,000, and he sells it in 2025 for ₹10,00,000:

Cost of acquisition = ₹50,000 (indexed to inflation as per CII)
Sale price = ₹10,00,000
Capital Gains = Sale Price – Indexed Cost
Tax @ 20% + cess on Long-Term Capital Gains (LTCG)

📌 3. Conversion of Jewellery into Gold Bars – Is It a Transfer?

A commonly asked question among valuation practitioners is: “If inherited jewellery is melted and converted into gold bars, does that attract capital gains tax?”

✅ No Transfer, No Tax

Under current jurisprudence and CBDT guidelines:

Mere conversion of jewellery into another form (e.g., gold bars) does not constitute a ‘transfer’.
Hence, no capital gain arises at the stage of conversion.
The cost of acquisition and period of holding remain unchanged post-conversion.

📌 Best Practice: Document such conversions through a formal valuation report before and after conversion, and retain supporting records for audit and scrutiny.

📌 4. Dividing Inherited Jewellery Among Siblings

Upon the demise of the owner (without a Will), assets including jewellery devolve as per Hindu Succession Act, 1956. In such cases:

All Class I legal heirs (e.g., spouse, children) inherit equally.
Each heir becomes an individual owner of their share from the date of succession.

⚖️ Tax Treatment of Division:

The division of assets among siblings is not taxable.
However, subsequent sale of individual shares attracts capital gains tax.

📝 Documentation to Avoid Future Disputes:

Family Settlement Deed or Memorandum of Partition is advisable.
Include clear mention of:
- Identity of heirs
- Share of each heir
- Details of inherited items
- Date of inheritance and cost as per original acquisition

📌 5. Planning Tips to Save or Defer Tax

For families and estate planners, efficient planning can legally reduce tax incidence.

✅ Strategies:

Sell Shares Individually
- Each sibling can sell their inherited share in separate financial years.
- Use of individual basic exemption limits can reduce tax burden.
Utilize Exemptions:
- Section 54F (investment in residential property) or
- Section 54EC (investment in specified bonds) to reinvest capital gains and claim exemption.
Prefer Senior Citizens or Non-Earning Members:
- Allocate sale under their PAN (post-inheritance transfer) to benefit from basic exemption limit and lower slab rates.
Maintain Valuation Certificates:
- Get a registered valuer’s report for the inherited jewellery to establish Fair Market Value (FMV) and ensure compliance during scrutiny or litigation.

🧾 Ideal Practice for Valuation Professionals and Tax Advisors

To ensure accurate assessment, legal compliance, and smooth division, professionals must:

Obtain a Certified Valuation Report
- From a registered valuer recognized under the Income Tax Rules, 1962.
Prepare Family Partition Document
- Not mandatory to register, but notarization is advisable.
Ensure Individual Sale Invoices or Joint Declaration
- If sold collectively, issue invoice in all names or document proceeds split to prevent clubbing under one PAN.
Disclose Properly in ITR
- Show LTCG as inherited asset with appropriate cost and holding period based on original owner.

📚 Final Takeaway

Capital gains tax on inherited jewellery is an area that blends emotional legacy with legal and tax implications. For aspirants in the valuation field, understanding the cost basis rules, indexation, division mechanics, and strategic planning is essential.

Meticulous documentation and professional advice not only reduce tax burden but also preserve family harmony. As asset inheritance becomes increasingly common in inter-generational wealth transfers, valuation practitioners will play a pivotal role in guiding families through compliance and optimisation.

Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Please consult with a qualified chartered accountant or tax lawyer for advice specific to your case.