Inherited family gold? How to prove ownership and source of jewellery to Income Tax Department
A recent case involving inherited jewellery valued at ₹1.56 crore highlights the importance of maintaining records that establish the ownership and source of family jewellery, even when the original purchase invoices are no longer available.
The Kolkata Income Tax Appellate Tribunal (ITAT) ruled in favour of the assessee in the case, underscoring the importance of supporting claims about inherited jewellery with credible and consistent evidence.
Simply possessing jewellery may not establish ownership
Taxpayers may be required to explain both the nature and source of jewellery and support their explanation with appropriate evidence, tax experts say.
The mere presence of jewellery at a person’s home or in a locker does not, by itself, establish how it was acquired or who originally owned it.
Where jewellery has been passed down through generations, taxpayers should be able to demonstrate a credible chain of ownership showing how it came into the family.
How can taxpayers prove inherited jewellery?
There is no single document that necessarily establishes inheritance. Instead, taxpayers should maintain a combination of records that consistently demonstrate that the jewellery belonged to a parent, grandparent or another earlier family member.
Documents such as old valuation reports, wealth-tax records, insurance documents, wills, succession papers and family settlement agreements can help establish the history of jewellery.
Photographs showing family members wearing the jewellery, along with locker records and other ownership-related documents, may also provide supporting evidence, particularly when the original purchase bills are unavailable.
However, taxpayers still need to provide a credible explanation of the source. The tax authorities may consider the evidence as a whole rather than relying on a single document.
Current valuation records can strengthen future claims
Families can also create records of jewellery currently in their possession to make it easier to establish ownership and value in the future.
An inventory containing photographs, descriptions and details of the jewellery, along with a report from a registered or qualified valuer, can document its identity, weight and prevailing value.
A current valuation report, however, cannot by itself establish when the jewellery was acquired or who originally purchased or owned it. It should therefore be maintained alongside historical records establishing the jewellery’s ownership and source.
Source of jewellery must be adequately explained
Ultimately, taxpayers may need to establish both ownership and the source of the jewellery. If the explanation is not adequately supported by evidence, the jewellery could potentially be treated as unexplained income, resulting in a significant tax liability under the applicable provisions.
Jewellery acquired from disclosed or exempt income, accumulated household savings or inherited wealth can also be explained through supporting documentation.
Purchase invoices, inheritance records, wills, succession documents and other ownership records can help establish the source and history of such jewellery.
CBDT’s search thresholds do not cap jewellery ownership
During an income-tax search, the Central Board of Direct Taxes (CBDT) has prescribed indicative thresholds of 500 grams for a married woman, 250 grams for an unmarried woman and 100 grams for a male member.
These thresholds, however, should not be interpreted as limits on the amount of jewellery that a person is legally permitted to own.
Rather, the quantities are relevant to the treatment of jewellery found during a search and the circumstances in which its possession may be considered reasonable.
Locker holders should maintain ownership records
Under Section 524 of the Income-tax Act, 2025, jewellery found in a person’s possession or control during a search is presumed to belong to that person.
Consequently, the person in whose name a locker is held could face a presumption of ownership over jewellery found inside it. The individual may then need to explain both who owns the jewellery and how it was acquired.
Maintaining an organised record of inherited and purchased jewellery, including old valuation reports, photographs, wills, insurance records, purchase bills and other ownership documents, can therefore help families explain the jewellery’s source if questions arise during tax proceedings.
