The Goods and Services Tax influenced the market for several commodities, including gold, to a great extent. Gold is one of the few items that attract different GST rates at different levels, right from purchasing to manufacturing. Resultantly, GST on gold applies to both the supply of the precious metal and the manufacture of gold ornaments. Individuals who intend to purchase gold must find out more about the gold GST rates and their impact in detail.
What is GST on Gold?
GST is imposed on individuals when they purchase gold jewellery. Subsequently, they have to pay GST on making charges as well. Notably, import, purchase and making charges of gold attract different GST rates. Nonetheless, one does not have to pay taxes if he/she is selling off old gold or using the proceeds to purchase new jewellery. Another way to put it is one can save on GST taxes by merely purchasing new gold in exchange for old gold items.
This table illustrates gold rates pre and post GST regime.
|Gold making charges||Nil||5%|
|GST Rate (Gold value)||Nil||3%|
Impact of GST on Gold
After the introduction of the GST rate on gold, the precious metal has become expensive by at least 0.75%. It has directly lowered the demand for gold in general.
Keeping this information in mind, let’s proceed to find out the immediate impact of GST on gold at different levels.
- Influence on gold import
The rising price of gold has reduced its demand and also influenced the liquidity of investing in this precious metal. Regardless, advantages like the Free Trade Agreement with countries like South Korea have enabled GST registered importers to ship gold without paying an additional 10% customs duty.
- Influence on ornaments
The GST on gold jewellery 2020 translates to 5% levied on making charges. Typically, GST on gold jewellery is either in the form of a fixed charge or as a fixed percentage on gold value. This is why often, the making charges tend to vary among jewellers and influence the GST on gold coins and ornaments.
- Influence on organised and unorganised sector
The GST system requires gold dealers to maintain a record of every transaction. It is expected to improve the accountability and transparency among both segments of the sector. Notably, only 30% of this sector can be categorised as organised. As a result, it is feared that a high rate may coax vendors to smuggle gold or sell the precious metal without a proper bill.
Besides GST on gold other factors like – high liquidity, exchange rate reduced gold mining, and a hike in international rates increases the gold prices.
GST Calculation on Gold
It must be noted that a standard invoicing pattern is not followed in this sector leading to varying billing systems among jewellers. However, each city has a jewellery association that declares gold rate every morning.
Typically, the final price of jewellery is computed with this basic formula –
Price of gold X Weight in grams + Making charges + GST applied at 3% on the (price of jewellery + making charges)
Example of GST Calculation
Suppose the price of gold is Rs.40000/10 gram, and the making charge is 10% of it. Calculate how much Mr Ravi has to pay with and without GST for 25 gram of raw gold.
The final price is determined with this formula –
Price of gold X Weight in grams + Making charges + GST applied at 3% on the (Price of jewellery + making charges)
This table offers a fair understanding of the comparison between the price of 25 gram raw gold before and after GST.
|Particulars||Price Pre-GST system||Price Post-GST System|
|Cost of 25gram of gold (A)||Rs.10000||Rs.10000|
|Customs duty at the rate of 10% (B)||Rs.10000||Rs.10000|
|Service tax levied on the sum of the price of gold and making charges (C)||Rs.1100||Nil|
|GST levied at the rate of 3% on the sum of gold and making charges (D)||N/A||Rs.3300|
|VAT charged on the sum of (A+B+C) at the rate of 1.2%||Rs.1333.20||N/A|
|Final price of 25gm of raw gold||Rs.112433.20||Rs.113300|
GST on Gold Exemptions
A GST exemption was declared on the supply of gold made by a notified agency to registered jewellery exporters on the 31st GST council meeting. Such an exemption aims to reduce the GST burden of gold jewellery exporters and to make the Indian gold export sector more competitive in the international market.
A sharp 5% is charged on the making charges; registered jewellers can claim an Input Tax Credit of 2% on such expenses. However, the said exemption is directed at providing respite to gold jewellery exporters; domestic buyers will not benefit from it.
Things to Consider Before Buying Gold Ornaments
Investors who intend to purchase gold must keep a few things in mind. Some of the pointers are given below –
- They should only purchase gold jewellery that is hallmarked, or BIS certified to be sure about its purity.
- The price of gold is based on its finesse. Low quality of gold typically comes at a relatively low per gram price and also attracts a lower GST on gold. Though 24 Karat is the highest quality of gold, it is not suitable for crafting jewellery. Generally, 22 Karats, 18 Karat and 14 Karat gold is used to make jewellery.
- It must be noted that precious and semi-precious stones in ornaments are taxed differently under the GST regime. This is why one must feature them separately on the purchase bill.
- The price of gold tends to change daily and is influenced by several factors including – its demand and supply, import duty, currency fluctuations and norms of the Indian jewellery market. Such factors and their influence tend to impact gold GST rate on transactions significantly.
Should You Invest in Gold Now?
Financial experts predict that between 2020 and 2021, gold will remain to be among the prominent elements in a majority of investment portfolios. They further believe that if the interest rates remain low for a longer time and businesses recover slowly from the current economic phase, more investors will be inclined to invest in gold. Nonetheless, individuals must analyse their portfolio carefully to ascertain whether investing in this asset class will be suitable for their investment portfolio or not. On top of that, they must also weigh in their current risk taking capability and financial plan and find out more about prevailing GST rates on gold and GST on silver if required.