At a time when Prime Minister Narendra Modi has urged people to avoid buying gold for one year to save India’s foreign exchange reserves, one may consider exchanging old jewellery for redesigned ornaments. However, such exchanges are not a simple swap but a transfer of a capital asset, triggering capital gains tax. The value attributed to the old jewellery, adjusted against the price of the new ornament, becomes the sale consideration for tax purposes. Any profit — difference between the sale consideration and the original cost of acquisition —is taxable as capital gains. The tax liability will depend on how long the jewellery was held before being exchanged.