How Does GST Affect Gold Prices and Jewellery?

Individuals must pay GST when they buy gold jewellery at the GST rate. They must therefore pay GST on creating charges as well. Notably, various GST rates apply to importing, purchasing, and paying gold.

Adopting a unified GST rate throughout India has affected gold market pricing. Almost many Indians invest in gold as an asset. Different gold GST rates apply to purchases, manufacture, and imports. Hence, to make a wise choice, you must research how GST will affect gold prices. A new age of taxes in India began on July 1st, 2017 when the Goods and Services Tax (GST) was implemented. Investors, producers, and consumers anxiously await information on the new tax slabs.

Did You Know? The 3% GST rate on gold is lower than the standard rate of 5%, which applies to most other goods and services in India. 

GST on Gold

The government has suggested three tax bands for the new tax system. In the Union Budget 2022–2023, the gem and jewellery business has high expectations from the Modi government. 

The industry requests that the Centre lower import taxes on polished precious and semi-precious gemstones and remove tax received at the source. Gold was subject to a fixed 3% GST plus an additional 8% tax on charges. In response to objections voiced by various parties, the tax on the making charge was subsequently decreased to 5%. 

Nonetheless, one is exempt from paying taxes if they dispose of old gold or utilises the money to buy new jewellery. Another way to say it is that one can avoid paying GST taxes by buying new gold in exchange for old gold goods. This table shows gold prices before and after the GST regime.

Also Read: GST benefits - 7 Ways One Must Know How GST benefits the Economy

What Effect Does GST Have on Gold in India?

1. Prices

Gold is subject to a GST of only 3% compared to other commodities, but many other precious goods are subject to a GST of as high as 28%. The 3% GST on gold imports, which directly impacts the price of finished gold and jewellery, is the direct reason for the rise in gold GST rates. Gold and jewellery manufacturing costs were 18% when the GST took effect. Due to the tax on the marking fees, which was driving up the price of gold, various jewellery councils requested a GST reduction. It was later lowered to 5% and fixed there.

2. Demand 

The demand for gold has decreased due to its rising price, affecting liquid investments in this precious metal. Yet, benefits like the Free Trade Agreement with nations like South Korea have allowed GST-registered importers to ship gold without paying an additional 10% customs charge.

The 2023 gold ornaments GST rate corresponds to a 5% fee added to transaction costs. GST is typically applied to gold jewellery as a flat charge or a fixed percentage of the gold value. This explains why the production costs frequently differ amongst jewellers and affect the Tax on gold coins and jewellery.

3. Transaction Records 

Gold dealers must record every transaction under the GST system. It is anticipated that it will increase both sectors of the sector's accountability and openness. Significantly, only 30% of this industry falls into the organised category. A high charge is also expected to induce sellers to smuggle gold or sell the precious metal without a valid bill. A rise in international rates, strong liquidity, limited gold mining, and GST on gold are further reasons that drive up the price of gold.

Also Read: All You Need To Know About GST Advantages And Disadvantages

More Impacts of GST on Gold:

Before adopting the 3% GST on gold, the effective tax rate on the value of an item was 2% (1% VAT, 1% Service tax). As a result, gold buyers will see a marginal price increase after implementing the 3% GST on gold. Hence, according to the table above, an actual increase in the price of gold is predicted to be 2%.

• Gold jewellery prices have increased to decrease India's gold imports and the nation's current account deficits.
• This is because we are a net importer of this priceless metal, and most imported gold is utilised to make jewellery.
• The organised sector is a relatively minor percentage of the Indian gold market, primarily unorganised.
• With the introduction of the GST on gold, even transparency has grown, although the organised sector only feels this benefit.
• To avoid paying and charging GST on sales of gold, several industry analysts predict that smaller jewellers may enter the unorganised sector.

GST, Gold, and the Unorganised Sector

GST was hailed as a significant player in the organised market because just 30% of the gold market in India is organised. It was seen as a reliable method of bringing transparency to the gold trading market. The introduction of GST gave a far more robust legal framework for purchasing gold, which the chaotic gold sector searched for in fundamental reforms.

It should be emphasised that the GST also permits Input Tax Credits, despite what appears to be a considerable increase in gold prices (ITC). Due to the option to borrow money against the taxes they had already paid on their outgoing shipments, players in the gold market could decrease their responsibility. They were thus encouraged to join the organised market.

By taking this action, such unorganised players can obtain credit at favourable rates and gain more credibility in the eyes of potential clients. Implementing GST gave tiny gold players additional opportunities to ascend the organised value chain.

Also Read: GSTIN – Importance, Format & How to Apply for GST Number

Factors to Consider When Purchasing Gold Items

1. Hallmark or BIS-Certification

Always buy hallmarked or BIS-certified jewellery to guarantee the metal's purity.

2. Purity of Gold

The purity of the gold affects how much it costs. Although 24 Karat gold is the best quality, it is unsuitable for jewellery-making. Typically, 22 KT, 18 KT, or 14 KT are favoured when making jewellery. The price per gram of gold would be lower, and the GST rate would be lower the quality of the gold.

3. Precious or Semi-Precious Stones Used

Make sure the price of any precious or semi-precious stones is listed individually on the bill if the jewellery contains either. Under GST, these might receive a distinct tax treatment.

Sale of Old Jewellery

In many homes in India, where gold is in high demand, selling old gold ornaments and purchasing new ones is a common practice by setting aside a little extra money. To manage such aspects, it was necessary to establish clear guidelines for GST. Consequently, it was discovered that:

• Old jewellery provided to a jeweller only to be modified or remade will be treated as job work and subject to a 5% GST fee.
• When purchasing new jewellery with money from selling old jewellery, the GST on the purchase will be deducted from the tax paid on the sale.
• Customers and jewellers were initially concerned that a jeweller purchasing used jewellery from an individual would charge 3% GST under the reverse charge mechanism, effectively meaning that a customer would receive less value per gram of gold sold. A jeweller will not be required to pay any tax under the reverse charge mechanism on such transactions, the GST Council explained later. The government has created a safety net to ensure jewellers don't abuse the exemptions for clients. The tax under the reverse charge method will be applied if an unregistered supplier of gold ornaments sells to a registered supplier.
• When the demonetisation wave struck India, a large amount of black money was converted into gold overnight, leading to increased demand for gold. The effect was so significant that monthly gold purchases increased by almost 100 tonnes. Like the GST, the increase in total taxes of almost 1.5% will probably drive more business to the black market. Smaller businesses may be more likely to sell without records, which could hurt the sales of prominent jewellers, more likely to follow the law.

On the other hand, the GST regime may see more small and unorganised players move to an organised reporting structure, widening the tax net and bringing in more money for the government, given that the seamless and transparent nature of GST is expected to outweigh the tax increase.

Conclusion

When sellers choose to sell gold for cash, they must consider the gold's market worth, purity, and weight. Ensure customers do not increase the weight of the gold by the weight of the stones used to adorn the gold jewellery. They also need to be aware of the taxes related to gold sales. The most crucial step is choosing a trustworthy buyer before anything else. You want to pick a business that offers more advantages than conventional purchasers and sellers of gold jewellery.
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