During the income tax raids (technically “search”), generally jewellery is found at the residence/lockers of the tax payer. Tax payers, more often than not, claim that the unexplained portion is inherited by them or gifted to them on marriage/other occasions. There could be purchases made too out of the disclosed income.
Jewellery held by a taxpayer may be disclosed by the tax payer as an asset in the balance sheet or included in his drawings (shown as deduction from capital). Tax payer may or may not have retained the bills for the purchase of jewellery.
How much could be seized by IT Dept ?
Excess jewellery which remains unexplained is seized and what does the law say on this ?.
Wealth tax (WT) was in vogue till 31.3.2015 and many of the tax payers would have filed their WT returns till then which was abolished thereafter. It was a mere 1% tax above the limit of Rs 30 lakhs on certain assets like-vacant land, vehicles and jewellery.
Most of the Chartered Accountants would have advised their clients to file the WT returns disclosing the aforesaid assets and paying the WT, while few had simply ignored/missed.
What is declared in the WT return can not be seized irrespective of the quantum. Presently, since WT is not in vogue, it is advised that one keeps a track of the jewellery as per the last WT return of 31.3.2015 and the subsequent purchases made out of explained sources.
At present there is a column for in the Income Tax Return [for those who declare above Rs. 50 lakhs as income] to disclose jewellery ( if not shown in the Balance Sheet).
This disclosure could be one of the criteria to determine the year of acquisition. At the same time failure to disclose / under reporting could be one of the grounds to deny the claim of inheritance/receipt of gifts.
In the case of tax payers who did not file WT returns, gold jewellery and ornaments to the extent of 500 gms. per married lady, 250 gms. per unmarried lady and 100 gms. per male member of the family, is not seized.
Jewellery found in the house/locker is deemed to be owned by the taxpayer and if at all the same belongs to anyone else, sufficient evidences have to be produced to exclude the same from your tally.
Tax on The Excess Unexplained Jewellery
Unexplained excess jewellery is treated as the income of the year in which the raid takes place and is taxed at 78% (60% tax + 25% of tax as surcharge + 4% cess on tax & surcharge). Moreover, it attracts penalty of 10 % on the tax.
If excess jewellery of Rs. 10 lakhs is found the liability would be Rs. 8.40 lakhs plus interest. Effectively one coughs up 84% (plus interest) of the unexplained jewellery.
About the author:
CA Vijayakumar Shetty
A graduate from St Aloysius College Mangalore and qualified as a CA in 1994 and is in practice since then. He is also founding partner of Shetty & Co.
Email: cavkshetty@gmail.com
Mobile 9845082430