written by Khatabook | June 30, 2021

GST Impact on Gold & Gold Jewellery Prices

The introduction of a uniform GST rate across India has influenced the market prices of gold to an extent. Gold is an asset that almost all Indians invest in. Gold attracts different gold GST rates from imports to manufacturing and purchases. Hence you must study the impact of GST on gold prices to make an informed decision.

Impact of GST on Gold

GST Rate on gold

GST is payable by everyone who buys gold jewellery. The GST rate on gold is 3%. Imported gold also attracts GST. Earlier, there was no tax on making charges. Now under GST, there is a tax of 5% on making charges

When you sell old gold, you have to pay GST unless you decide to use the money to buy new jewellery. Here’s how the taxation rates changed with introducing a uniform rate for taxes under the GST Act 2017.

Pre and Post GST for Gold Table

Tax applied 

Before GST

After GST

Value Added Tax-VAT 

1%

Nil

Sales tax or ST

1%

Nil 

Making charges

Nil 

5%

Duties on import 

10%

10%

Gold value GST Rate

Nil 

3%

Impact of the GST on Gold

After the introduction of GST on gold jewellery, the prices have increased by approximately 0.75%. They have seen an increase from the 12% in total in the pre GST period to 18% in the post-GST regime. This move has influenced how much GST on gold is payable while reducing the gold demand. Let us analyze the impact of the GST on the various factors affecting gold.

Gold imports:

The rising gold GST and daily prices of gold have reduced the demand for gold and its liquidity. The GST regime has brought several  Free Trade Agreements with gold exporting countries. It has enabled the registered GST importers to ship gold by paying only the GST and import duty.

Gold Jewellery

The GST rate on gold jewellery is 5% on jewellery and  3% on making charges. The GST is levied as a fixed percentage on the value of gold. Hence the making charges vary from jeweller to jeweller. It also influences the final sale price of ornaments, gold bars, coins etc.

Also Read: Impact of GST on Different Sectors

Impact on Gold Industry

The gold GST in India affects both the unorganized and organized sector in the manufacture of jewellery. The GST Act makes gold dealers track and record all gold transactions to improve transparency and accountability. However, only one-third of this sector is organized. A high tax rate is a disadvantage since it encourages gold smuggling and sales without proper records like the purchase receipt and Bureau of Indian Standards certification.

The daily gold prices are dependent on the GST on gold rate.

 The gold prices are also affected by several other factors like;

  • High investor liquidity, 
  • Exchange rate reduction on gold mining, 
  • High inflation rates, 
  • Low interest rates on deposits, 
  • The slowing of economies due to the pandemic, 
  • Fluctuating rupee and USD prices, 
  • Export duties increase due to the USD fluctuations
  • Limited gold stocks 
  • Increase in international gold prices and more.

Calculation of GST on Gold:

Jewellers follow different billing systems. There is no standard invoice with GST on gold in India followed. However, the Jewellery Association declares the daily gold rate each morning. That rate is used when computing the final jewellery price.

The final price of jewellery is the [Weight of gold multiplied by the daily rate of gold] plus [the making and wastage charges] plus [the gold jewellery GST rate applicable].

Here’s an example:

Suppose the price of gold is Rs.4,000/gram on a particular day. And the wastage and making charges amount to 10% of the gold weight. If you were to buy, say, a gold chain of 20 grams, then the final price would be:

[20g x Rs 4,000] [10% of 20g x Rs 4,000] 3% GST on jewellery or 80,000+8000 or 88,000 plus GST on this @3% of Rs 2640 or Rs 90,640/-.

The table notes the GST on gold jewellery prices at the rate of Rs 4,000/gm. It shows the calculations made before and after the introduction of GST for raw gold of 25 gm.
 

Particulars

Price Pre-GST system 

Price Post-GST System 

25 gm gold @ Rs 4,000/gm (A)

Rs.10000

Rs.10000

Customs duty at the rate of 10% (B)

Rs.100

Rs.100

Service tax on gold price 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 chargeable on (A B C) @ 1.2%

Rs.1333.20

N/A

Final price 

Rs.1,12,433.20

Rs.1,13,300

GST Exemptions on Gold: 

The GST Council provides privileges to agencies supplying gold to GST registered gold exporters. This is why the Indian market is competitive internationally. There is also a reduction in the tax burden of GST on gold ornaments on the exporters. Making charges of 5% and 2% can be claimed as Input Tax Credit. This is helpful for gold Jewellery exporters but not for domestic customers. 

Also Read: GST Calculator Online Goods and Services Tax Calculator

Conclusion:

In India, gold rates change rapidly upwards during festivals and wedding seasons. Sudden changes in Rupee prices and interest rates make gold investments a better choice. You should make a thorough study of the gold rate and factors affecting the prices of gold plus the GST rate on gold jewellery before investing. It is a good idea for investors to have some portion of the portfolio in gold. Gold can also be bought digitally on reputed platforms like KhataBook. So, happy investing!

FAQs

What is the GST on gold rate?

GST applies to gold at the rate of 3%. However, the final price of gold for jewellery would also include the making charges and 5% GST on the making charges. 

Can I claim ITC from GST on my gold purchase?

Yes, if you are a registered jeweller, you can ITC on your purchase.

Is buying or investing in gold tax-free?

No, it's not tax-free. GST applies on gold purchases. Also, Capital gains tax applies when you sell the gold you have invested in.

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