What are the Income Tax rules of selling Jewellery for a Jewellery Store in India?

 Income Tax Rules for Selling Jewellery by a Jewellery Store in India

India has a rich tradition of investing in gold and jewellery, making it one of the largest markets for precious metals and gems. Jewellery stores, whether large showrooms or small retail businesses, play a vital role in the ecosystem. However, selling jewellery in India involves a number of Income Tax implications, compliance norms, and reporting obligations that every jewellery business must adhere to.

This article provides a comprehensive overview of the income tax rules applicable to jewellery stores when selling jewellery in India.

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1. Taxation of Income from Jewellery Sales

Jewellery stores in India are typically taxed under the head of "Profits and Gains from Business or Profession" as per the Income Tax Act, 1961.

a. Income Tax Slabs for Businesses

• Proprietorship Firm: Taxed as per individual slab rates.

• Partnership Firm / LLP: Flat 30% + surcharge + cess.

• Private Limited Company: Generally taxed at 25% or 30% depending on turnover, plus applicable cess and surcharge.

Jewellery stores must maintain proper books of accounts to determine taxable income, which includes:

• Revenue from sale of gold, diamonds, silver, etc.

• Making charges and service income.

• Less: Cost of purchase, labor charges, rent, depreciation, etc.

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2. GST vs. Income Tax

While Goods and Services Tax (GST) applies on the sale of jewellery, it is separate from income tax.

• GST on Gold Jewellery: 3% on value of gold + 5% on making charges.

• GST collected and paid does not form part of the income but is an indirect tax liability.

However, non-compliance with GST (e.g., not issuing invoices) may lead to consequences under both GST and Income Tax laws, including the presumption of undisclosed income.

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3. TCS (Tax Collected at Source) on Jewellery Sales

Under Section 206C of the Income Tax Act, TCS is applicable in certain high-value transactions.

a. When is TCS Applicable?

• If the sale of jewellery exceeds ₹10 lakh in a single transaction to a buyer (other than a manufacturer or trader), the seller (jewellery store) is required to collect TCS @ 1% from the buyer.

• Applicable only on cash or cash + cheque/card transactions.

🔹 TCS must be deposited with the government and reflected in the buyer’s Form 26AS.

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4. Cash Transaction Limits – Section 269ST

Jewellery stores need to strictly adhere to Section 269ST of the Income Tax Act.

a. Cash Transaction Limit:

• No person can receive ₹2,00,000 or more in cash:

  • In aggregate from a person in a day;

  • In respect of a single transaction;

  • In respect of transactions relating to one event or occasion.

Violation of this rule attracts a penalty equal to the amount received in cash under Section 271DA.

🔴 Example: If a customer pays ₹2.5 lakh in cash for a wedding jewellery purchase, the store may face a penalty of ₹2.5 lakh.

b. Mandatory PAN for High-Value Transactions

As per Rule 114B, PAN is mandatory for:

• Sale of any goods or services exceeding ₹2,00,000 per transaction.

• Jewellery stores must collect and quote PAN in such cases.

If PAN is not available, Form 60 must be obtained.

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5. Presumptive Taxation (Section 44AD) – Applicability to Small Stores

Small jewellery traders (individuals, HUFs, partnership firms with turnover up to ₹2 crore) may opt for Presumptive Taxation under Section 44AD, declaring 6% income (on digital receipts) or 8% income (on cash receipts) of total turnover as profit.

⚠️ However, due to the nature of the jewellery business and high-value transactions, most stores do not opt for presumptive taxation and instead follow regular taxation with audit requirements.

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6. Audit Requirement – Section 44AB

If the turnover exceeds ₹1 crore, or ₹10 crore (if cash receipts do not exceed 5% of total receipts), the business must undergo a tax audit under Section 44AB.

• Audit report must be filed by 30th September of the assessment year.

• Non-compliance leads to penalties.

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7. Inventory Valuation and Capital Gains (if any)

a. Stock-in-Trade vs. Capital Asset

For jewellery stores, jewellery is considered stock-in-trade, not a capital asset. Therefore:

• Gains from sale are business income, not capital gains.

• Closing stock must be valued at cost or market price, whichever is lower.

However, if the business converts any personal jewellery into stock-in-trade, capital gains will arise in the year of sale under Section 45(2).

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8. Reporting Requirements for Jewellery Stores

Jewellery stores must comply with several reporting requirements:

a. Statement of Financial Transactions (SFT)

Under Rule 114E:

• If a person sells jewellery worth ₹10 lakh or more in cash in a financial year, they must report it to the Income Tax Department in the Form 61A (SFT filing).

b. Books of Accounts – Section 44AA

Jewellery stores must maintain:

• Cash book

• Journal, Ledger

• Bills, Vouchers

• Stock register

• Purchase and sales register

Failure to maintain books can lead to penalties under Section 271A.

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9. Penalties for Non-Compliance

Nature of Default	Relevant Section	Penalty
Failure to collect TCS	206C	Equal to the TCS amount
Cash transaction > ₹2 lakh	269ST	Equal to amount received
Not quoting PAN	Rule 114B	₹10,000
Not filing SFT	285BA	₹500/day (can increase to ₹1,000/day)
Non-maintenance of books	44AA / 271A	₹25,000
Non-filing of audit	44AB / 271B	0.5% of turnover (max ₹1.5 lakh)

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10. Income Tax Return Filing for Jewellery Stores

Jewellery stores must file Income Tax Returns (ITRs) based on their business type:

• ITR-3: For individuals/HUFs with business income.

• ITR-5: For partnership firms/LLPs.

• ITR-6: For companies.

Returns must be filed by the due date (usually 31st July or 30th September, depending on audit applicability).

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Conclusion

Jewellery businesses in India operate in a highly regulated tax environment due to the high-value nature of transactions and the risk of tax evasion. Income Tax rules require jewellery stores to:

• Maintain transparency in sales.

• Avoid large cash transactions.

• Deduct and deposit TCS when applicable.

• Report high-value transactions properly.

• Maintain accurate records and file timely returns.

Non-compliance can attract hefty penalties, scrutiny, and even prosecution in serious cases. Jewellery stores are advised to work with qualified Chartered Accountants and regularly review their compliance with Income Tax, GST, and TCS regulations.

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FAQs

Q1. Is TDS applicable when a customer buys jewellery?
No, TDS is not applicable on purchase of jewellery by an individual customer. However, TCS may be collected by the seller.

Q2. Can a customer pay ₹5 lakh in cash for jewellery if split into multiple bills?
No. Splitting bills to bypass the ₹2 lakh cash limit is a violation of Section 269ST and is punishable.

Q3. What if the jewellery store receives gold in exchange (old gold)?
This is considered a sale of goods and must be recorded appropriately. If money is refunded over the exchanged item, it needs proper invoicing and GST treatment.