The sale of old gold jewellery can result in a capital gains tax liability, even when the proceeds are subsequently used to purchase new gold jewellery. The treatment is relevant for consumers undertaking gold exchanges and jewellers handling such transactions.

Under income-tax rules, jewellery is treated as a capital asset. The Income Tax Department specifically excludes jewellery made of gold, silver, platinum and other precious metals from the definition of personal effects. Gains arising from its sale can therefore be taxable.

Tax is levied on the gain rather than the entire sale proceeds. Buying or exchanging the old jewellery for a new piece does not, by itself, make the capital gain tax-free because the sale or exchange of the old jewellery and purchase of the new jewellery are treated as separate transactions.

For jewellery held for more than 24 months, the gain is treated as long-term capital gain and is taxed at 12.5%, without indexation. Jewellery sold within 24 months results in a short-term capital gain taxable at the applicable slab rate.

For inherited or gifted jewellery, the previous owner’s cost of acquisition and holding period may be relevant when calculating the gain. Jewellery received as a gift on marriage or from specified relatives, and assets received through inheritance, are subject to separate tax rules.

For long-term gains, Section 54F may provide an exemption where the sale consideration is invested in a residential house, subject to specified conditions.