Numismatic Notes vs. Pooja Coins: How the Income Tax Act Treats Inherited Treasures

Why This Matters

In many Indian families, two categories of “old coins and notes” exist:

1. Numismatic collectibles — rare coins, demonetised notes, commemoratives, proof sets, or uniface notes preserved for their rarity and market value.

2. Pooja coins — ordinary coins kept in the family mandir or pooja box, used for daily rituals and ceremonies.

From a cultural lens, both are “old coins.” But for the Income-tax Act, 1961, they are treated very differently — and this difference decides whether sale proceeds are taxable as capital gains or remain completely exempt.

Legal Definition – The Capital Asset Question

• Section 2(14): “Capital asset” means property of any kind held by the assessee.

• Exclusion – personal effects: Movable property held for personal use is excluded, except jewellery, archaeological collections, drawings, paintings, sculptures, and works of art.

👉 Therefore:

• Collectibles (numismatic notes/coins): Analogy to “works of art / jewellery” → capital assets.

• Pooja coins (ritual use): If proved to be “personal effects” → outside capital asset definition → sale not taxable.

Judicial Interpretation – Where the Line is Drawn

Courts have repeatedly clarified this boundary:

• Personal use exemption upheld

  • CIT v. Sitadevi N. Poddar (Bom HC, 1984): Silver utensils used for household/pooja purposes treated as personal effects.

  • CIT v. H.H. Maharaja Rana Hemant Singhji (SC, 1976): Articles in personal/ceremonial use not taxable as capital assets.

• Collectibles not personal effects

  • Jewellery worn occasionally still treated as capital asset (CIT v. H.H. Maharani Usha Devi).

  • By analogy, rare numismatic items preserved for value are capital assets, even if not used daily.

Interpretation:

• Pooja coins can qualify as personal effects if used in rituals, supported by evidence.

• Numismatic notes/coins (collected for rarity/investment) → always capital assets → sale taxable.

Gift and Inheritance – First Stage

• Section 56(2)(x): Gift from a relative (grandparents, parents, etc.) is exempt.

• Section 49(1): For inherited/gifted assets, cost to previous owner becomes assessee’s cost.

• Section 2(42A): Holding period includes that of previous owner → ensures long-term classification.

   Receiving old coins/notes from grandparents is tax-neutral. The question of tax arises only on sale.

Sale – How Tax Applies

(A) For Numismatic Notes/Coins (Capital Assets)

• Cost of acquisition:

  • Original cost to grandparents, or

  • FMV as on 01.04.2001 if asset predates that date (Section 55(2)(b)(ii)).

• Holding period: Inherited → long-term.

• Tax rate:

  • Transfers before 23.07.2024: LTCG @ 20% with indexation (Sec. 112(1)(c)(ii)) or, at assessee’s option, 12.5% of gross sale (without indexation).

  • Transfers on/after 23.07.2024: As per Finance (No.2) Act, 2024 → flat 12.5% without indexation.

(B) For Pooja Coins (Personal Effects)

• Excluded from definition of capital asset.

• Sale proceeds are not chargeable to capital gains tax.

• Burden of proof is on assessee to establish personal/religious use.

Analytical Rule of Thumb

• Older asset + higher FMV as on 01.04.2001 → historically, 20% with indexation gave the lowest tax.

• Negligible 2001 FMV → 12.5% gross option could be better (for sales before 23.07.2024).

• For sales on/after 23.07.2024 → law mandates 12.5% without indexation, eliminating comparison.

Documentation – The Deciding Factor

To defend your position, maintain:

1. Proof of inheritance/gift: Gift deed, will, family affidavit.

2. Valuation evidence: FMV certificate as on 01.04.2001 (if applicable), auction catalogues, registered valuer’s report.

3. Sale invoice / auction memo with buyer details.

4. For pooja coins: Photos of coins in pooja room, family affidavit of ritual use, absence of auction/insurance evidence.

5. Working papers: Both tax computations (where options existed), with CII chart and tax challans.

Do’s and Don’ts

  Do’s

• Always compute under both methods (if pre-23.07.2024 transfer) and adopt the beneficial route.

• Document FMV as on 01.04.2001 for old inherited assets.

• Use ITR-2, Schedule CG & Schedule SI for reporting.

• Keep supporting documents for at least 6 years.

• Pay advance tax if liability exceeds ₹10,000.

    Don’ts

• Don’t misclassify collectibles as personal effects without evidence.

• Don’t skip disclosure of sales in ITR (risk of mismatch with auction house reporting).

• Don’t understate sale consideration — though Section 50C doesn’t apply, penalties under Sections 270A/277 may.

• Don’t ignore clubbing rules if sale happened while assessee was still a minor (Section 64(1A)).

Filing in ITR – Stepwise

1. Confirm date of transfer to decide tax regime (pre/post 23.07.2024).

2. In ITR-2 → Schedule CG, enter sale value and cost/FMV.

3. If pre-23.07.2024 transfer:

   • Compute both 20% with indexation and 12.5% gross → choose lower.

   • Reflect in Schedule SI.

4. If post-23.07.2024 transfer:

   • Directly compute @12.5% of LTCG (without indexation).

5. If claiming personal effect (pooja coins): not shown as capital gains. Optional disclosure in Exempt Income schedule for clarity.

Conclusion

• Numismatic collectibles = capital assets → taxable on sale.

• Pooja coins = personal effects → outside capital gains net, if personal/religious use is proved.

• Gift/inheritance stage = tax-free.

• Post-23.07.2024 law change: LTCG on collectibles taxable @12.5% without indexation.

• Documentation is critical — valuation, proof of inheritance, and evidence of personal use decide the tax outcome.

• Numismatic Notes vs. Pooja Coins – Taxation at a Glance

  Aspect	Numismatic Notes / Collectible Coins	Pooja Coins / Ritual Use Coins
  Nature	Rare, demonetised, commemorative, proof sets; kept for rarity or value	Coins kept in mandir / pooja box; used for rituals and family ceremonies
  Capital Asset?	Yes – treated as capital assets under Section 2(14) (collectibles not excluded as personal effects)	No – may qualify as personal effects under Section 2(14)(ii) if personal/religious use is proved
  Judicial Support	Jewellery analogy: CIT v. H.H. Maharani Usha Devi – occasional use still capital asset	CIT v. Sitadevi N. Poddar (Bom HC, 1984) – silver utensils for pooja held as personal effects; Maharaja Rana Hemant Singhji (SC, 1976) – ceremonial use items not taxable
  Gift / Inheritance (from grandparents)	Exempt u/s 56(2)(x); cost = previous owner’s cost u/s 49(1)	Exempt u/s 56(2)(x); not a capital asset on later sale
  Sale – Before 23.07.2024	LTCG taxable: 20% with indexation (Sec. 112) OR 12.5% gross (no indexation) – whichever lower	Not taxable (outside capital asset definition)
  Sale – On/After 23.07.2024	LTCG taxable @ 12.5% without indexation (Finance No.2 Act, 2024)	Not taxable (still personal effect)
  Documentation Needed	Gift deed/will, FMV certificate (01.04.2001), sale invoice, working papers	Family affidavit, photos showing pooja use, tradition proof
  Burden of Proof	AO presumes taxable unless shown otherwise	Assessee must prove ritual/personal use to claim exemption
  ITR Disclosure	Report in ITR-2 → Schedule CG & SI	No CG disclosure; may note in Exempt Income Schedule for clarity