Gold especially gold ornaments are one of the very few items that feature GST applicability multiple times and that too at different rates. GST on gold as a good is 3%, while in case of gold jewelry an additional 5% GST is applicable on the making charges of the gold ornaments. Thus GST is applicable on both the supply of the good i.e. gold and also the service i.e. manufacture of the gold jewelry by the jeweler.
GST on Gold Imports
Gold is mainly imported and while GST is applicable to gold imports made from one state to another via IGST or Integrated GST at 3%, international imports are not subject to GST. Thus if a GST registered business/individual imports gold from outside of India, instead of paying GST on gold, customs duty at the rate of 10% is payable on gold imports made in the form of semi-finished/raw gold as well as gold bars. This cost is passed on to the end user and GST is applicable on top of any customs duty that may have been paid by the importer of the gold.
Revised Tax Rates on Gold Jewelry under GST
Thus the following taxes/tariffs are applicable to gold jewelry if such jewelry is manufactured using gold imported from overseas:
- 10% Customs Duty on gold being imported from overseas
- 3% GST on the value of gold in the jewelry
- 5% GST on making charges of the gold jewelry
The 5% GST is applicable to making charges of the gold jewelry. Making charges for gold jewelry can be either in the form of a fixed percentage on the value of gold or a fixed charge. Thus making charges of jewelry tend to vary from one jeweler to another which will impact the GST on gold jewelry being purchased.
Recent GST on Gold Exemption
In the 31st GST Council meeting on 22nd December 2018, a GST exemption was introduced in case the supply of gold was being made by a Notified Agency to GST registered exporters of gold jewelry. While this would reduce the GST burden on Indian gold jewelry exporters and possibly make Indian gold exports more competitive in the global marketplace, domestic gold jewelry buyers will be unaffected by this new GST exemption.
Buying Gold Jewelry: Key Factors to Keep in Mind
- Ensure that you purchase hallmarked/BIS certified jewelry to ensure purity of the gold
- The price of gold varies based on the fineness of gold used. While 24 Karat (24KT) is the highest quality of gold available, it is unsuitable for making jewelry. Jewelry is usually made using 22KT, 18KT and 14KT gold. Lower quality of gold equals lower per gram price and lower GST on gold.
- Make sure value of any precious/semi-precious stones in the jewelry is featured separately on the bill. These may have different tax treatment under GST.
- Gold rate i.e. price of gold changes daily depending on a variety of factors and this can change the GST on gold jewelry applicable to your transaction (usually marginally).
Comparison of Jewelry Prices before and after GST
The following is an illustrative example of how gold jewelry prices have increased after GST:
|Serial No.||Costs and Taxes on Gold||Before GST (Rs.)||After GST (Rs.)|
|A||Price of 10 gm gold||25,000||25,000|
|B||Customs Duty (10%)||2,500||2,500|
|D||Service Tax (1%)||275||0 (N/A)|
|F||VAT (1%)||277.75||0 (N/A)|
|H||GST on Gold (3%)||0 (N/A)||825|
|J||Making charges (12% of Gold Price + Customs)||3300||3300|
|L||GST on making charges (5%)||0 (N/A)||165|
|M||Total Price of Jewelry||31,352||31,790|
*We have assumed making charges of 12%. This can fluctuate from one jeweler to another.
Thus total taxes before GST implementation = 2500 + 275 + 277.75 = Rs. 3052.15
And total taxes after implementation of GST on gold = 2500 + 875 + 165 = Rs. 3540
Approximate increase in taxes after GST implementation = 2%
Impact of GST on Gold
Prior to implementation of GST on gold at 3%, the effect tax rate on the value of gold was 2% (1% VAT + 1% service tax), thus, GST implementation on gold at 3% has increased the price of only marginally for gold buyers. On taking into account, the 5% GST on making charges of gold jewelry, as seen in the above case, the effective increase in taxes is around 2% after GST on gold was implemented, as shown in the table above. This increase in price of gold jewelry is in line with efforts to reduce India’s gold imports and lower the country’s current account deficit. This is because, we are a net importer of this precious metal and a majority of the gold imported is used in jewelry making.
From the seller’s perspective, India’s gold market is largely unorganized, with the organized sector accounting for a relatively smaller portion of the market. Even though introduction of GST on gold has increased the transparency, this benefit is only applicable to the organized sector. As a result, some industry experts believe that smaller jewelers may move into the unorganized sector to avoid paying and charging GST on gold sales.