GST on Gold

5paisa Research Team Date: 18 May, 2023 10:44 AM IST

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Introduction

According to Section 8 of the CGST Act, selling gold ornaments or jewellery to the general public constitutes a composite supply of goods and services. The gold utilised is regarded a good, and creating charges or adding value is related to job work. Because the primary supply is the sale of gold, a 3% GST rate will be imposed on the overall value of jewellery, whether or not making costs are listed separately. The CBIC explained this in its sectoral FAQs on what is GST on gold, including the rate of GST on gold.

This comprehensive guide will walk you through GST calculations on gold, provide a practical example, and delve into the immediate consequences of GST on gold demand, pricing, and the overall market landscape.
 

What is GST on Gold?

GST on Gold refers to the Goods and Services Tax applied to the purchase, manufacturing, and import of gold and gold jewellery in India. Under the GST regime, different rates are imposed on various aspects of gold transactions. For instance, when individuals purchase gold jewellery, they must pay GST on both the gold value and the making charges. Importing, purchasing, and making charges of gold attract distinct GST rates, with the gold value being taxed at 3% and making charges at 5%.

It is important to note that selling old gold or exchanging it for new jewellery is exempt from GST, allowing individuals to save on taxes by trading in their old gold items for new ones. The introduction of GST on gold has increased the overall cost of the precious metal, leading to a decrease in demand. However, certain exemptions and trade agreements help reduce the GST burden on gold exporters, promoting competitiveness in the international market.


 

GST Calculation on Gold

GST calculation on gold involves determining the final price of gold jewellery, factoring in the gold price, and weight, making charges, and applicable GST rates. 

The standard formula for calculating the final price is:
Price of gold X Weight in grams + Making charges + GST applied at 3% on the (price of jewellery + making charges)

Each city's jewellery association declares the gold rate daily and making charges can vary among jewellers. It is crucial to consider the GST rates for both the gold value (3%) and the making charges (5%) when calculating the final price of gold jewellery.
 

Comparison of Tax Rates on Gold Before and After GST

Here is a comparison of tax rates on gold before and after the implementation of the GST:

Tax Component

Before GST (%)

After GST (%)

VAT

1

Nil

Sales Tax

1

Nil

Gold Making Charges

Nil

5

Import Duty

10

10

GST Rate (Gold Value)

Nil

3

 

The table highlights the shift in tax rates due to the introduction of GST, including the elimination of VAT and Sales Tax, the introduction of GST on gold value and making charges, and the unchanged import duty. 

Example of GST Calculation

Let's look at an example of GST calculation on gold jewellery with the updated price and name to better understand the process. Suppose Mrs. Anamika wants to purchase a gold ornament weighing 25 grams, with the price of gold being Rs. 60,000 per 10 grams. The making charge for the ornament is 10% of the gold value.
➢    First, we need to calculate the price of the gold for 25 grams: Price of gold = (Rs. 60,000/10 grams) x 25 grams = Rs. 150,000
➢    Next, we determine the making charges: Making charges = 10% of Rs. 150,000 = Rs. 15,000
➢    Now, we calculate the GST applied to both the gold value and making charges: GST on gold value = 3% of Rs. 150,000 = Rs. 4,500 GST on making charges = 5% of Rs. 15,000 = Rs. 750
➢    Finally, we add the gold price, making charges, and GST to find the total cost of the gold ornament: Total cost = Price of gold + Making charges + GST on gold value + GST on making charges Total cost = Rs. 150,000 + Rs. 15,000 + Rs. 4,500 + Rs. 750 = Rs. 170,250
 

Component

Calculation

Amount (Rs.)

Gold Price (25g)

(Rs. 60,000/10g) x 25g

150,000

Making Charges

10% of Rs. 150,000

15,000

GST on Gold Value

3% of Rs. 150,000

4,500

GST on Making Charges

5% of Rs. 15,000

750

Total Cost

Gold + Making + GST (Value + Making)

170,250

 

In this example, Mrs Anamika would have to pay Rs. 170,250 for the 25-gram gold ornament, which includes the gold value, making charges, and applicable GST on both components. By calculating the cost this way, Mrs Anamika can understand the impact of GST on her gold purchase and make an informed decision.

 

Impact of GST on Gold

The implementation of GST on gold has had a significant impact on the gold market in India. By introducing a unified tax structure, GST has altered the way gold is taxed at various stages, from purchasing to manufacturing. The most notable impact is the increased cost of gold due to the 3% GST on gold value and 5% GST on making charges.

This price rise has led to a decline in the demand for gold, as consumers may find it more expensive to purchase gold jewellery or invest in gold. The liquidity of investing in gold has also been affected by the new tax structure, potentially discouraging some investors.

However, there have been some positive outcomes as well. The GST system requires gold dealers to maintain records of every transaction, thereby improving accountability and transparency in the sector.
 

GST on Gold Exemptions

GST on gold exemptions primarily benefits gold jewellery exporters in India. At the 31st GST council meeting, an exemption was announced for the supply of gold made by a notified agency to registered jewellery exporters. This exemption aims to reduce the GST burden on exporters and make the Indian gold export sector more competitive in the international market.

Additionally, registered jewellers can claim an Input Tax Credit of 2% on the 5% making charges. However, it's important to note that these exemptions are focused on providing relief to gold jewellery exporters, and domestic buyers will not benefit from them.


 

Things to Consider Before Buying Golds

Before purchasing gold or gold ornaments, investors should consider several factors to ensure they are making an informed decision:

●    Hallmarking and Certification: Buyers should only purchase hallmarked gold jewellery or BIS (Bureau of Indian Standards) certified. This certification guarantees the purity and quality of the gold.
●    Finesse and Quality: The price of gold is based on its finesse (purity), with lower-quality gold attracting a lower per-gram price. Buyers should be aware of the varying levels of gold purity when making a purchase.
●    Karat: Although 24 Karat is the purest form of gold, it is not suitable for crafting jewellery due to its softness. Typically, 22 Karat, 18 Karat, and 14 Karat gold are used to make jewellery. Buyers should consider the Karat value based on their preferences and intended use.
●    Taxation: It is essential to understand the impact of GST on gold value (3%) and making charges (5%) when purchasing gold jewellery. This will help buyers account for the overall cost, including taxes.
●    Precious and Semi-Precious Stones: In gold ornaments, precious and semi-precious stones are taxed differently under the GST regime. Ensure they are featured separately on the purchase bill to avoid any discrepancies.
●    Daily Price Fluctuations: The price of gold changes daily due to various factors, including demand and supply, import duty, currency fluctuations, and norms in the Indian jewellery market. Buyers should keep track of these fluctuations when planning to purchase gold and time their investments accordingly.
 

HSN Code for Gold & Jewellery

HSN Code

Description

Rate (%)

Effective Date

Rate Revision

7108

Gold, including gold plated with platinum, in unwrought, semi-manufactured, or powder form (Non-Monetary)

3

01/07/2017

3%

71081100

Non-Monetary Gold (including gold plated with platinum) in powder form

3

01/07/2017

3%

71081200

Non-Monetary Gold (including gold plated with platinum) in unwrought form

3

01/07/2017

3%

71081300

Non-Monetary Gold (including gold plated with platinum) in semi-manufactured form

3

01/07/2017

3%

71082000

Gold, including gold plated with platinum, in unwrought, semi-manufactured, or powder form (Monetary)

3

01/07/2017

3%

 

Conclusion

The implementation of GST on gold has brought about notable changes in the gold industry. With varying GST rates applied to different aspects of gold transactions, such as the 3% rate on gold value and the 5% rate on making charges, the overall cost of gold and gold jewellery has increased. This has impacted the demand for gold and its liquidity as an investment. 

However, the GST system has also contributed to better accountability and transparency in the gold sector, which was previously largely unorganised. The HSN codes have made it easier for businesses to determine the appropriate GST rates and maintain proper invoicing and record-keeping.

Despite the increased costs, gold remains a popular investment option for many, and understanding the impact of GST on gold purchases is essential for making informed decisions. Buyers should consider factors such as purity, karat, and certification while also taking into account the daily price fluctuations and taxation before purchasing gold or gold ornaments.

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Frequently Asked Questions

The GST rate for gold is currently 3%. However, the actual tax amount may vary depending on the price of gold and other factors.

The gold gst rate on gold bars is also 3%. This tax is applicable on the sale or purchase of gold bars, regardless of the weight or quantity.

GST on digital gold is the same as on physical gold, which is 3%. When you buy digital gold, you own the gold in a virtual form, and the actual gold is stored safely in vaults by the service provider

Before the introduction of GST, gold was subject to a 2% tax, with 1% being charged as VAT and another 1% as Service Tax. In the current GST era, gold jewellery job work is also taxed. The government has announced that a 3% GST will be imposed on gold purchases and has implemented a Reverse Charge Mechanism (RCM) on the purchase of old gold.

The gold gst rate on gold coins is  3%. However, if the gold coins are classified as collector's items, they may be taxed at a higher rate.

The GST rate on gold-making charges is 5%. This tax applies to the labour charges involved in the making of gold jewellery.

GST can be claimed on gold jewellery if the jewellery is purchased for business purposes or if the purchaser is a registered GST taxpayer. However, certain conditions and documentation may be required to claim the tax credit. 

An e-way bill is not required for gold transportation within the same state if the value of the gold is less than Rs. 50,000. However, if the transportation is interstate or the value of the gold exceeds Rs. 50,000, an e-way bill must be generated
.