GST On Gold

GST is to be paid by individuals when they engage in the purchase or sale of the gold in the form of jewellery. In the earlier tax regime, customers did not have to pay taxes on the making charges of these jewellery. However, under the GST tax structure, GST has to be paid on the making charges levied on such gold jewellery purchased. GST provides different rates of taxes to be levied on the import, purchase and making charges of gold.

GST rules further state that a person is not required to pay GST on the sale of old jewellery or even in case of using the proceeds of sale of old jewellery to buy new gold jewellery. This is therefore an excellent way to save money or avoid paying GST by purchasing new gold jewellery from the proceeds of old gold jewellery.

What is the GST rate on gold?

The rate of GST levied on the sale or purchase of gold is different than the previous tax structure. Given below is a brief comparison on the rate of taxes that are levied on gold in the previous tax structure as well as in the new tax structure.

Calculation of GST on Gold

The rates of Gold are declared by a designated association in each city on a daily basis.

The price of gold is calculated in the following manner.

Price of Gold * weight in grams + making charges + GST @ 3% (price of jewellery +making charges)

The rates of taxes levied on the sale or purchase of jewellery can be better explained through a brief example given below.

Assuming the price of gold is Rs. 40,000 per 10 grams, the difference in the prices of gold in the pre GST era or the post GST era.

The above example highlights the difference in the pricing of gold in the different tax structures. It highlights that the ultimate price of gold has increased in the new and revised tax structure of GST.

Impact of GST on Gold

GST has had a profound effect on every sector since its introduction in our country. In the gold market, the introduction of GST has resulted in the increase in the prices of gold. This has been true despite the lower demand for gold in the market. Post implementation of GST, the prices of gold has seen a net increase of about 0.75% on account of additional taxes levied on gold. This net increase is due to the levy of the 3% GST on 10% of import duty.

In the previous tax structure, customers were liable to pay VAT at the rate of 1% and 1% of service tax. The revised tax structure under GST to be levied at the rate of 3%, this has resulted in an increase in the overall prices of gold.

Impact of GST on gold import

The import of gold has increased on account of the implementation of GST in our country. Importers have increased such imports not only in order to take the advantage of the recent tax revisions but also as an advantage under the Free Trade Agreement with South Korea. This agreement allows the importers to import gold without the payment of 10% customs duty.

Impact of GST on unorganized gold sector

India has among the highest imports of gold globally due to the huge demand for this metal in our country. Out of all the demand for this metal, on an average, some portion of the demand is met through illegal means i.e., by being smuggled into the country through alternate routes. This becomes the unorganized sector of gold. As the prices of gold have increased on account of global factors as well as introduction of GST, this may result in an increase of smuggled gold in our country as compared to what was the ratio before the implementation of GST.

Impact of GST on the organized gold sector

While the unorganized sector of gold is a comparatively smaller portion of the market of the gold imports, the organized gold sector accounts for the major chunk of the gold imports. Hence, the implementation of GST is perceived to have a huge impact on the gold trade in the organized sector.

Implementation of GST will bring more transparency and accountability in the gold market. It is also feared that the increased compliance and due diligence introduced under GST may force or attract the gold traders towards the unorganized sector of gold

The overall increase in taxes on gold has resulted in many traders and merchant associations to make formal requests to the government for reduction in the import duty levied on the import of gold. This relief sought in the import duty for by such associations is 4% i.e. reducing the import duty to 6% from the existing 10%

The compliances under GST modules require the traders and dealers to report every transaction in order to be eligible for claiming the input tax credit. This is assumed to hurt the unorganized sector a lot and impact the overall demand for gold in India

Impact of GST on making charges

The introduction of the new tax structure has led to the levy of GST on making charges of gold jewellery. GST levied on making charge is to the extent of 5%. The proposed rate of tax on such making charges was 18% by the GST council but at the time of implementation, the rate was kept at 5%.

Points to Remember While Purchasing Gold

Gold can be bought for personal use as well as for investment purposes. There are many considerations to be carefully understood to make a sound purchase of gold for the intended use. The details of such pints to be considered are mentioned below.

• Gold should be purchased through a registered dealer or trader of gold in order to assure of its authenticity
• Customers have to ensure that the gold has all the proper certifications and is hallmarked, or BIS certified to assure its purity.
• The grade of gold is the finesse of the gold. It is the most important factor that directly influences its prices. Hence it is to be checked at the time of buying gold in order to assure that the price paid is in correspondence to the finesse of the gold.
• If gold is purchased for investment purposes, gold coins or bars are preferred as they provide higher return value. There is no reduction of value on account of any imbedded metal or impurity or precious stones.
• GST on gold is also dependent on its finesse. Gold of lower grade will have lesser value or price and will also be taxed lower.
• If gold is purchased for personal use or jewellery, 24 carat gold, although being the highest quality of gold, is not suitable for crafting jewellery. In such cases, 22 carats or 18 carat and 14 carat gold is used.
• Rate of GST is separate for precious and semi-precious stones in the gold jewellery. Hence, the customer should ensure that they are billed separately.
• The prices of gold are influenced by multiple factors like demand and supply fluctuations, currency fluctuations import duty, geo-political scenarios, etc. the impact on gold prices is also seen on GST rates and hence it has to be closely monitored.

FAQs – GST on Gold