The government has said its amended Income tax laws will only exempt jewellery and gold purchased from disclosed income and ancestral ornaments, allowing authorities to seize jewellery if it exceeds certain prescribed limits.
These limits include up to 500 grams for married women, 250 grams for unmarried women and 100 grams per male member of the family, according to Central Board of Direct Taxes (CBDT) .
"The jewellery/gold purchased out of disclosed income or out of exempted income like agricultural income or out of reasonable household savings or legally inherited which has been acquired out of explained sources is neither chargeable to tax under the existing provisions nor under the proposed amended provisions," the CBDT said.
"Further, legitimate holding of jewellery up to any extent is fully protected," it added.
It is unclear how the tax authorities plan to distinguish between ancestral and "legitimate" jewellery or what sources of income would be required to explain those holdings.
The Lok Sabha earlier this week passed the Taxation Laws (Second Amendment) Bill, which proposes a steep up to 85 per cent tax and penalty on undisclosed wealth that is discovered by tax authorities during search and seizure.
Dispelling rumours that jewellery would be covered under the amended law, CBDT said the government has not introduced any new provision regarding chargeability of tax on jewellery.
The Bill, which is currently under consideration of the Rajya Sabha, will amend Section 115BBE of the Income Tax Act to provide for a steep 60 per cent tax and a 25 per cent surcharge on it (total 75 per cent) for black money holders.
Another section inserted provides for an additional 10 per cent penalty on being established that the undeclared wealth is unaccounted or black money, taking the total incidence of levies to 85 per cent.
CBDT said: "Tax rate under section 115BBE is proposed to be increased only for unexplained income as there were reports that the tax evaders are trying to include their undisclosed income in the return of income as business income or income from other sources.
"The provisions of section 115BBE apply mainly in those cases where assets or cash etc. are sought to be declared as 'unexplained cash or asset' or where it is hidden as unsubstantiated business income, and the Assessing Officer detects it as such."