Declarations Of Precious Metals Under Vdis To Be Reviewed

The Central Board of Direct Taxes (CBDT) will review the certificates of declarations already made under the Voluntary Declaration of Income scheme (VDIS), 1997, for gold and silver items, including jewellery and utensils.

CBDT has also issued directions to commissioners across the country to demand proof of the year of acquisition of the jewellery and utensils declared before issuing certificates. The measure is to prevent assesses from minimising their effective tax rates by declaring their gold and silver holdings as purchases of the years when gold and silver prices were at rock bottom.

Declarants will henceforth be required to furnish the name of the jeweller from whom the purchases were made, CBDT sources said.

 

An invoice is not expected since such purchases would be unaccounted transactions. However, the declarant can furnish the identity of the jeweller from whom the purchase was made, tax officials said. In case the declarant fails to satisfy the tax officials, the declarations would be treated as current year purchases.

The VDIS was being so extensively exploited that tax officials thought that it had the makings of a major scam. Nipping the scam in the bud was essential, an official said. Such manipulation was made possible by falling precious metal prices, the fact that the income-tax Act permits the offsetting of losses against profits and the vagueness of the I-T Act.

In case of gold, the law is clear on what connotes personal effects, but this is not the case with silver, where utensils can be considered to be personal effects and hence be exempt from paying capital gains tax. Officials point out that on account of this opaqueness, the VDIS could be abused.

This is because declarants can further reduce the effective tax rate by selling the silver utensils as part of their personal effects, thereby avoiding paying any capital gains tax.

By some estimates, the tax incidence through these measures could be brought down to 11 per cent.

According to some tax officials, the CBDTs demand may depress VDIS collections since the attraction of exploiting the existing loophole in the scheme will no longer exist.