PAN-Aadhaar for Gold buying: The purchase of precious metals like gold and silver is a tradition considered auspicious during festivals. However, amidst the joy of buying, it’s important to be aware of the regulations surrounding gold transactions, especially when using cash. With 24 Karat gold prices hovering around Rs 74,000 per gram, it’s wise to understand the rules for purchasing gold jewellery.
As per an ET report, the government has made buying gold with cash stricter by bringing the gems and jewellery sector under the Prevention of Money Laundering Act (PMLA), 2002. This move, announced on December 28, 2020, requires jewellers to comply with KYC norms, such as requesting PAN or Aadhaar for cash transactions above a specified limit, and reporting large value cash transactions of Rs 10 lakh and above to the government.
Additionally, recent years have seen tightening of rules regarding cash transactions under the Income Tax Act, 1961, including TDS on cash withdrawals exceeding specified limits and restrictions on the maximum amount of cash transaction in a single day between individuals.
So, how much gold can someone purchase with cash without needing to provide PAN or Aadhaar at the time of the transaction? Also, what is the maximum limit for cash transactions according to income tax laws?
Income tax laws on cash transactions for gold purchase
Income tax laws restrict cash transactions above a certain amount. Section 269ST of the Income Tax Act prohibits cash transactions exceeding Rs 2 lakh in a single day, either from one person or related to one event or occasion. If you buy gold jewellery with cash for more than Rs 2 lakh in a single day, you’ll violate the income tax law. In such cases, the receiver of the cash is liable to pay a penalty equal to the amount transacted in cash under Section 271D of the Income Tax Act, states the ET report.
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ET illustrates this with an example: If an individual purchases gold jewellery for Rs 4 lakh in cash, exceeding the Rs 2 lakh limit set by Section 269ST, a penalty applies under Section 271D. This penalty equals the cash transaction amount. In this case, with a cash transaction of Rs 4 lakh, the receiver (the jeweller) would be liable to pay a Rs 4 lakh penalty. Since the penalty falls on the receiver, jewellers are hesitant to engage in cash transactions exceeding Rs 2 lakh.
PAN and Aadhaar requirements for gold purchases
According to Stuti Galiya, Partner at law firm Khaitan & Co, providing PAN details is compulsory for gold purchases valued at Rs 2 lakh and above under Rule 114B of the Income Tax Rules of 1962. Therefore, whether you buy gold for more than Rs 2 lakh per transaction, regardless of the payment method (cash or electronic), you must furnish PAN details to the jewellers.
The PMLA rules require PAN or Aadhaar for transactions above a certain threshold.
Galiya further explains that PAN/Aadhaar is necessary for all transactions over Rs 2 lakh. In practice, jewellers who don’t accept cash above this limit from a single person when selling gold jewellery comply with Income Tax Act provisions and aren’t affected by the December 2020 PMLA notification, unless they suspect the transaction is suspicious. It’s important to note that some companies and jewellers have their own extra procedures for verifying customer identity.
Meghna Mishra, partner at Karanjawala & Co., states that under the PMLA rules, individuals can conduct high-value cash transactions if they undergo KYC compliance. For purchases of gold jewellery worth Rs 2 lakh and above, individuals must provide PAN or Aadhaar, even for electronic payments.
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However, Section 269ST of the Income Tax Act restricts cash transactions over Rs 2 lakh for individuals. Therefore, KYC compliance isn’t required for transactions (cash or electronic) below Rs 2 lakh, she says.
