Important Keyword: Capital Gains, Section 112, Tax on Gold, Tax on Motor Vehicle.
Table of Contents
Capital gains tax isn’t just limited to real estate or shares. It can also apply to movable personal assets like jewelry, vehicles, art, and collectibles. However, the Income Tax Act, 1961, treats these assets differently depending on their classification as capital assets or personal effects.
Investing in assets like gold, high-quality cars, and art is a popular practice in India, offering individuals opportunities to diversify their savings beyond traditional avenues. However, it’s essential to understand that these assets are considered capital assets under the purview of the Income Tax Act. Consequently, individuals must be mindful of the tax implications when selling these assets, as they may incur capital gains taxes.
For instance, when selling gold jewelry, luxury cars, or art collections, individuals may trigger capital gains tax liabilities based on the profits earned from the sale. The capital gains tax is calculated by determining the difference between the selling price and the cost of acquisition or improvement of the asset. This taxable gain is then subject to applicable tax rates as per the Income Tax Act.
Therefore, individuals who plan to sell such assets should carefully assess their tax obligations to ensure compliance with the law. Seeking professional advice or consulting tax experts can help individuals navigate the complexities of capital gains taxation and optimize their tax liabilities while divesting from these non-traditional investments. By staying informed and proactive, individuals can effectively manage their tax liabilities and make informed decisions regarding their investment portfolio.
What Is Movable Property?
Movable property refers to tangible assets that can be moved from one place to another. These include:
- Jewelry
- Paintings and sculptures
- Precious stones and metals
- Cars and other vehicles
- Furniture
- Artifacts and collectibles
Whether capital gains tax applies depends on whether the asset qualifies as a capital asset under Section 2(14) of the Income Tax Act.
Capital Asset vs. Personal Effects
Under Section 2(14) of the Income Tax Act:
- Capital Asset: Includes property of any kind, except “personal effects.”
- Personal Effects: Movable property held for personal use by the taxpayer or their dependent family members (e.g., clothing, furniture, or vehicles used personally).
Exception: Certain items are not treated as personal effects, even if used personally:
- Jewelry
- Paintings
- Sculptures
- Archaeological collections
- Drawings and artworks
👉 These are always treated as capital assets, and capital gains tax applies upon sale.
Capital Gains Tax on Jewelry
Jewelry includes:
- Gold and silver (in any form)
- Precious and semi-precious stones (with or without setting)
- Ornaments, whether used or stored
Tax Treatment:
- Short-Term Capital Gains (STCG): If sold within 3 years of purchase → taxed at normal slab rates
- Long-Term Capital Gains (LTCG): If held for more than 3 years → taxed at 20% with indexation benefit under Section 112
Capital Gains on Sale of Cars or Personal Vehicles
Generally Not Taxable
- Cars are considered personal effects.
- As per the Income Tax Act, gains from the sale of personal use vehicles are not subject to capital gains tax.
- No tax is applicable on profits made from selling your personal car, bike, or scooter.
🔎 Note: If the car is used for business purposes and claimed as a depreciable asset, capital gains tax may apply under depreciation rules (Section 50).
Capital Gains on Art, Antiques, and Collectibles
- These are always considered capital assets, regardless of personal use.
- Gains are taxed based on the holding period:
- Less than 3 years: STCG at slab rates
- More than 3 years: LTCG @ 20% with indexation
Summary of Capital Gains Tax Treatment on Movable Property
| Asset Type | Capital Asset? | STCG (≤3 years) | LTCG (>3 years) |
|---|---|---|---|
| Jewelry | Yes | Slab rate | 20% with indexation (Section 112) |
| Gold/Silver | Yes | Slab rate | 20% with indexation |
| Precious stones | Yes | Slab rate | 20% with indexation |
| Paintings/Art/Antiques | Yes | Slab rate | 20% with indexation |
| Car (personal use) | No | Not taxable | Not taxable |
| Car (business use) | Yes (depreciable) | Taxable u/s 50 | Taxable u/s 50 |
| Furniture (personal) | No | Not taxable | Not taxable |
Here’s the tax liability calculation for the sale of jewellery by Mrs. X:
For Short-Term Capital Gain:
- Sales Consideration: INR 25,00,000
- Cost of Acquisition: INR 15,00,000
- Short-Term Capital Gain: INR 10,00,000
- Tax liability at slab rates: INR 1,12,500
- Health and Education cess: INR 4,500
- Net Tax Liability: INR 1,17,000
For Long-Term Capital Gain:
- Sales consideration: INR 25,00,000
- Indexed Cost of Acquisition: INR 16,98,214
- Long-Term Capital Gain: INR 8,01,786
- Tax liability at 20% u/s 112: INR 1,60,357
- Health and Education cess: INR 6,414
- Net Tax Liability: INR 1,66,771
In the case of short-term capital gains, where Mrs. X sold the jewellery within 36 months of purchase, her net tax liability is INR 1,17,000.
In the case of long-term capital gains, where Mrs. X sold the jewelry after 36 months of purchase, her net tax liability is INR 1,66,771.
Adjustment of LTCG from movable property against Basic Exemption Limit
Adjusting special rate income against the basic exemption limit can be a smart tax-saving strategy for resident taxpayers like Mrs. X. Let’s explore how this works with an example:
Imagine Mrs. X, a resident of India, sold some jewellery and made a long-term capital gain (LTCG) of INR 8,01,786. Now, let’s say she doesn’t have any other taxable income.
In this scenario, Mrs. X can utilize the basic exemption limit, which is the threshold below which no tax is applicable. As of now, the basic exemption limit is INR 2,50,000 for individuals below 60 years of age.
Since Mrs. X’s total taxable income is less than the basic exemption limit, she can adjust her LTCG against this shortfall. Here’s how it works:
Taxable LTCG = LTCG – Basic Exemption Limit = INR 8,01,786 – INR 2,50,000 = INR 5,51,786
Now, Mrs. X needs to pay tax on this taxable LTCG. The tax rate for LTCG is 20%. So, her tax liability would be:
Tax Liability = Taxable LTCG * Tax Rate = INR 5,51,786 * 20% = INR 1,10,357
By adjusting her LTCG against the basic exemption limit, Mrs. X can significantly reduce her tax liability, saving herself some hard-earned money in the process. It’s a simple yet effective way to optimize tax payments and ensure that she keeps more of her investment gains.
Documentation Required
When selling movable capital assets, retain:
- Invoice or proof of purchase
- Valuation report (if applicable)
- Bank statements or sale deed
- Proof of holding period
These are essential for calculating the correct capital gains and supporting your ITR filing.
Filing in ITR
- Report gains under Schedule CG in your Income Tax Return (ITR-2 or ITR-3)
- Mention acquisition and sale dates, cost of acquisition, indexation, and final gains
- Exemptions under Section 54F (investment in residential house) may apply in specific cases
Access the Schedule Capital Gain section within the selected ITR form
Look for the relevant fields where you can input the necessary details regarding the sale of movable property:
a. Enter the full value of consideration, which refers to the sales value or the amount received from the sale of the asset.
b. Deduct any allowable expenses under Section 48 of the Income Tax Act. These deductions may include brokerage fees, legal expenses, or other costs directly related to the sale.
c. Provide the cost of acquisition, which represents the purchase value of the movable property. For long-term capital gain (LTCG), this value may need to be adjusted using the indexed cost of acquisition.
d. If any improvements were made to the property, enter the cost of improvement. Similarly, for LTCG, this value should be adjusted using the indexed cost of improvement.
e. Report any expenditure incurred wholly and exclusively in connection with the transfer of the property. This may include expenses related to advertising, transportation, or documentation associated with the sale.
Navigate to the Schedule Capital Gain
Under Schedule Capital Gain, click on the checkbox for the sale of assets other than all the above-listed items.
Select appropriate option i.e. long term or short term.
Click on continue and on the next page select the option of Short-Term Capital Gain or Long-Term Capital Gain whichever applies to the taxpayer.
Add details
Once the capital gain type is selected, enter the details such as sales value, purchase value, market value, etc.
For example, here Mrs. X has incurred short-term capital gain, so she needs to mention the details asked in ITR utility.
Taxpayers with long-term capital gains from the sale of movable property have options for exemptions:
- Section 54EE: This provision grants an exemption on the sale of any long-term capital asset by investing the proceeds in units of a specified fund.
- Section 54F: Another exemption opportunity arises when selling a long-term capital asset (excluding a house) by reinvesting in residential house property.
To avail of these exemptions, taxpayers must reinvest the sale proceeds into the specified capital asset and adhere to the prescribed holding period. Selling the new asset before the specified duration requires reporting the income in the relevant financial year and paying tax at the applicable rate.
Additionally, taxpayers can utilize the Capital Gain Account Scheme, allowing them to park the sale proceeds until they invest in the specified asset to claim the exemption. This option provides flexibility and facilitates tax planning for managing capital gain effectively.
Conclusion
While not all movable assets are taxed under capital gains, high-value items like jewelry, artwork, and precious stones are always treated as capital assets, regardless of usage. On the other hand, personal-use vehicles like cars are usually exempt from taxation.
Understanding the tax implications of selling such assets can help you stay compliant and reduce unexpected liabilities. For high-value transactions or complex asset holdings, consult a qualified tax advisor for accurate computation and planning.
Read More: Section 112: Tax on (LTCG) Long Term Capital Gain
Web Stories: Section 112: Tax on (LTCG) Long Term Capital Gain
Official Income Tax Return filing website: https://incometaxindia.gov.in/
