In India, the gold market has been greatly affected by the implementation of GST (Goods and Services Tax). The GST rate for gold varies depending on the transaction level, from purchasing to manufacturing. This implies that the availability and manufacturing of gold jewellery are liable to GST. If you are planning to purchase gold, then it is essential to understand GST on gold jewellery for 2023 and its potential impact.
Understanding GST on Gold
When individuals buy gold jewellery, their purchase is subject to GST. GST is also levied on the making charges. It is worth mentioning that distinct rates of GST are applicable to the importation, acquisition, and production costs associated with gold. Nevertheless, individuals who sell old gold or utilise the proceeds to purchase new jewellery are exempt from tax obligations.
The following table presents a comparison between the rates of gold before and after the GST system was put into effect:
| Tax Type | Pre-GST Rate | Post-GST Rate |
|---|---|---|
| VAT | 1% | Nil |
| Sales Tax | 1% | Nil |
| Gold Making Charges | Nil | 5% |
| Import Duty | 10% | 10% |
| GST Rate (Gold Value) | Nil | 3% |
Impact of GST on Gold
The implementation of GST on gold in India has profoundly affected the gold industry. Here are some of the immediate consequences of GST on gold purchase:
- Price Escalation: The enforcement of GST on gold has led to a surge in the cost of this precious metal. The rise in tax rate from 1.2% to 3% has dampened the overall demand for gold. The increasing cost of gold has not just hindered its demand but also impacted the liquidity associated with investing in this precious metal.
In 2023, GST on gold jewellery implies a 5% tax on gold jewellery-making charges. Generally, GST on gold jewellery is either a fixed charge or a fixed gold GST percentage. This is why, making charges often differ amongst jewellers, affecting GST on gold coins and ornaments.
Furthermore, various factors, including the implementation of GST on gold ornaments in 2023, heightened liquidity, fluctuating exchange rates, diminished gold mining activities, and the upsurge in international rates, play a role in driving up the prices of gold.
- Enhanced Transparency: The Goods and Service Tax system mandates gold dealers to document every transaction. It is expected that this will enhance accountability and transparency in the industry. It’s worth noting that only 30% of this sector can be classified as organised.
- Free Trade Agreement: Benefits like the Free Trade Agreement with countries like South Korea have allowed GST-registered importers to import gold without incurring an additional 10% customs duty.
GST on Gold Exemptions
During the 31st gathering of the GST Council, it was declared that licensed jewellery exporters shall be exempted from the imposition of GST when procuring supplies of gold. This exemption aims to boost the competitiveness of India’s gold export industry worldwide by reducing the GST burden on jewellery exporters.
In contrast, licensed jewellers have the option to avail a 2% input tax credit (ITC) on the expenses incurred on jewellery production. As a result, this exemption primarily benefits domestic consumers and gold jewellery exporters.
Also Read: Understanding GST Composition Scheme
Calculating GST on Gold
It is crucial to recognise that there is no standardised invoicing system within this industry, leading to variations in billing practices amongst jewellers. Nonetheless, in every city, there exists a jewellery association that announces the daily gold rate.
Typically, the ultimate cost of jewellery is determined using the subsequent fundamental equation:
Final price = (Gold price x weight in grams) + Making charges + 3% GST on (Jewellery price + making charges)
| Particulars | Before GST (₹) | Under GST (Not as a composite supply) (₹) | Under GST (As a composite supply) (₹) |
|---|---|---|---|
| The base price of 10 g gold (Assumed) | 1,00,000 | 1,00,000 | 1,00,000 |
| Add: Basic customs duty (10%) | 10,000 | 10,000* | 10,000* |
| Assessable value for service tax | 1,10,000 | 1,10,000 | 1,10,000 |
| Add: Service tax (1%) | 1,100 | Nil | Nil |
| Assessable value for VAT | 1,11,000 | 1,10,000 | 1,10,000 |
| Add: VAT (1%**) | 1,111 | Nil | Nil |
| Assessable value for GST | 1,12,111 | 1,10,000 | 1,10,000 |
| Add: GST on gold at 3% | Nil | 3,300 | — |
| Total value of gold | 1,12,111 | 1,13,300 | 1,10,000 |
| Add: Making charges at 10%^ (On base price + customs duty) | 5,500 | 5,500 | 5,500 |
| Assessable value for GST | 1,17,611 | 1,18,800 | 1,15,500 |
| Add: GST on making charges at 5% | Nil | 275 | — |
| Add: GST on gold Jewellery at 3%^^ (For composite supply) | — | — | 3,465 |
| Total value of Gold Jewellery | 1,17,611 | 1,19,075 | 1,18,965 |
* According to the Finance Act 2019, the customs duty rate has been raised from 10% to 12.5%.
** Assumed to be 1%, may vary based on the state/UT.
^ The charges for making jewellery differ amongst jewellers, and in this particular instance, we presume it to be 10%.
^^ If we view the supply of gold jewellery as a combination of various components, then the GST rate applicable, which includes making charges, is 3%. The supply of gold is regarded as the main component.
Input Tax Credit Availability for GST on Gold Business
A jeweller or gold merchant has the privilege to claim a refund for the input tax credit paid on the raw materials used, particularly gold and other expenses associated with job work. Even when a gold merchant pays taxes on a reverse charge basis for supplies received from an unregistered job worker, he/she is still eligible to claim ITC for such taxes.
Considerations Before Investing in Gold
- Gold prices can experience frequent fluctuations due to factors like demand, supply, and currency variations, which impact the final amount paid during transactions and subsequently affect GST on gold ornaments.
- When purchasing gold, the invoice for GST should clearly indicate the distinction between precious and semi-precious stones, as they are subject to different tax regulations.
- It is recommended to always purchase hallmarked gold jewellery to ensure its purity. The price of gold can vary significantly based on its quality, which in turn affects the applicable tax rate. While most jewellers typically utilise the highest quality gold, known as 24 karat. They also commonly use gold of 22 karat, 18 karat, and 14 karat purity.
E-Way Bill Regulations for Gold and its Various Forms
Before the 13th of September, 2022, as per CGST Rule 138(14), the movement of gold in any form, encompassing jewellery, goldsmith’s wares, and other items (Chapter 71), did not mandate the generation of an e-way bill. As a result, regardless of the gold recipient or supplier’s GST registration status, gold could be transported without an e-way bill.
However, a shift occurred from the 13th of September, 2022 when the National Informatics Centre (NIC) introduced a dedicated online platform for generating e-way bills exclusively designed for the transportation of gold, gold jewellery, and precious gemstones, as per the information provided by the states.
Also Read: GST Registration – A Step-by-Step Guide
Final Word:
In conclusion, the implementation of GST on gold in India carries substantial implications for both buyers and sellers. It is vital for individuals to fully understand these implications and meticulously assess all factors, including the possibility of obtaining a loan against a fixed deposit, prior to making any financial choices regarding gold.
