Threshold for 1% transaction tax on gold jewellery raised to Rs5 lakh

In a move that may boost demand for gold jewellery and help jewellers offload their huge inventories, the government has raised the threshold for 1 per cent tax collection at source (TCS) to Rs5 lakh with effect from 1 June, against the earlier decision to apply the 1 per cent TCS on cash purchase of gold jewellery of Rs2 lakh and above.

The decision comes at a time when jewellers, flush with unsold stocks of the 42-day strike period, are protesting against imposition of 1 per cent excise duty on gold and diamond jewellery.

Bachhraj Bamalwa, director at All India Gem & Jewellery Trade Federation (GJF), welcomred the decision to raise the TCS threshold limit to Rs5 lakh, saying Rs2 lakh was a very small amount for wedding jewellery purchases.

Gold jewellery sales in the country declined 41 per cent year-on-year to 88.4 tonnes, hitting a seven-year low in the first quarter of 2016. This is 44 per cent below the five-year quarterly average of 156.7 tonnes.

India's average annual consumption of gold was 850-900 tonnes.

However, gold prices have gone up nearly 20 per cent since this year, rising to levels of Rs29,500-30,000 per 10 gm.

"There is very little demand in the market. However, the Rs 5 lakh relief is expected to create some movement as there are wedding dates in June as well," Gadgil said.

TCS - introduced as a measure to curb tax evasion and check black money transactions - is collected by the seller from the buyer at the time of sale and is deposited with the government.

The person from whom the TCS is collected gets credit for the same amount in his income tax return. TCS of 1 per cent was imposed on cash purchase of jewellery worth Rs 5 lakh or more and of bullion worth Rs 2 lakh or more in 2012.