Everything You Need to Know about Taxes on Silver in India
Indeed, silver is not as expensive as gold, but it holds an equally important position in the lives of Indians. People use silverware during festivals and special occasions and gift it to their loved ones. Moreover, who can forget the timeless appeal of beautiful silver jewellery? Against such a backdrop, it would help people if they knew about taxes on silver in India.
What Are the Different Types Of Taxes on Silver?
The different types of silver taxes are detailed below.
- Taxes on Silverware and Ornaments
Capital gains tax is applicable on the sale of silverware and jewelleries. Let us explore the details:
Short-term capital gains tax (STCG)
If the sale of silver takes place less than 36 months after its purchase, the person has to pay STCG (short-term capital gains) Tax. Short-term capital gains are added to a person’s income and are taxable as per his/her income tax slab rates.
Let us understand this with an example-
Rima bought a silver necklace in December 2015. She sold it in April 2018 for ₹30,000, based on which she has to pay STCG tax. This amount will be added to her taxable income, and the tax that she has to pay will depend on her income tax slab rate.
Long-term capital gains tax (LTCG)
If a person has silver in their possession, in the form of ornaments or silverware, profits from its sale are treated as capital gains. So, if the person sells off the silver after holding it for 36 months, he/she has to pay LTCG (long-term capital gains) tax at the rate of 20.8% (including cess for health and education at the rate of 4%) with indexation.
- Taxes on Silver ETF (Exchange Traded Funds)
The first Silver ETF was launched in India in January 2022. As per SEBI’S regulations, Silver ETFs need to invest at least 95% of their assets in silver or silver-linked securities. The taxation rules of silver ETFs depend on their holding period, and the capital gains are classified as either long-term or short-term. With recent change in Budget 2023, all the gains will be considered as STCG and normal tax slab rate will be applicable.
- Goods and Services Tax (GST)
GST (Goods and Services Tax) on silver is applicable for supplying and manufacturing ornaments. GST council has set the GST rate of silver at 3%. There is also a 5% GST on making charges for jewellery.
To promote exports from India, the GST council has announced that GST is exempted from exporting gold, silver and platinum.
Let us understand the GST effect on silver with an example:
Amit bought silver worth ₹500 for which he was required to pay 3% GST. So, the total price was ₹515. After seven months, Amit decided to sell off the silver. If the price of silver does not undergo any change, he would receive only ₹500.
The GST rate is not applicable at the consumer level, i.e. it will not be put into effect when someone sells off the silver. Reduction of the resale value of the silver is an important way GST affects silver jewellery buyers.
What Are the Different Ways to Invest in Silver?
An important point to note is that silver is a more suitable investment option for long-term investors because it requires time for price appreciation. Discussed below are some ways to invest in this precious metal:
- Silver jewellery
Owning silver ornaments is an excellent way to invest in silver. However, people must ensure that they invest in sterling silver with at least a 925 hallmark, indicating 92.5% purity.
- Silver coins or bars (bullions)
People can purchase silver bars or coins from banks or any authorised stores. Saving the making fees in this manner is efficient.
These days, people can trade E-silver directly on National Spot Exchange Limited (NSEL). Moreover, these investment options resolve the problem of physical storage, making charges, etc.
- Silver ETFs
Exchange Traded Funds (ETFs) invest in asset categories such as stocks, commodities, bonds etc. Silver ETFs invest at least 95% of their total assets in physical metal or silver-linked instruments, and their NAVs (Net Asset Value) depend on the current price of silver.
Also Read: 5-Year FD Interest Rates in India for 2023
How Does a Silver ETF Work?
These exchange-traded funds are responsible for tracking the spot price of silver in open markets. As a result, variations in the price of silver will affect their NAV, as mentioned above.
Generally, fund managers of silver ETFs keep pure metals in secure vaults after purchasing them. Moreover, they need to furnish auditor reports on the authentication of silver held in the vaults. SEBI (Securities Exchange Board of India) regulates silver ETFs.
In addition, silver ETF investors must pay either LTCG or STCG tax after redeeming their investments. If an investor holds silver ETFs for less than 36 months, STCG from his/her investment will be added to his/her income. Then, the returns will be taxed as per the applicable income tax slab.
If the holding period is 36 months or more, a 20% tax will apply on the LTCG from the silver ETF.
With recent change in budget 2023, all the gains will be classified as STCG and normal tax slab rare will be applicable.
How to Calculate the Price of Silver for Taxation?
Below are vital points that will help you determine how the price of silver ornaments is determined:
- When buyers purchase silver ornaments and artefacts, the price they pay includes the cost of jewellery, and hallmarking charges (if applicable), making charges and GST.
- The formula for calculating the price of silver jewellery is as follows-
Rate of silver per gram x weight of silver x purity of the silver.
Let us illustrate this with an example:
Suppose a woman wishes to purchase a silver necklace weighing 38 grams. The jeweller says that the price of silver is ₹64 per gram or ₹64,000 per kg. Therefore, the silver necklace’s value would be ₹64 X 38 X 0.925 = ₹2249.6. Here, the number ‘925’ represents the purity of silver in parts per 1000.
Next, the jeweller will add making charges, hallmarking charges (if applicable) and GST at 3%.
Other Vital Points Regarding Price of the Silver
It would be helpful if buyers take note of the following points while purchasing silver ornaments and artefacts:
- Certain jewellers include making charges to the price of silver. However, others might mention it separately. So, financial advisers recommend buyers safely store the receipts containing the silver’s weight and purity after its purchase. Note that hallmarking charges need to be mentioned separately.
- The making charges can be levied either on a percentage basis or a per gram basis. For instance, making charges on silver can be 10% of the weight or ₹10 – ₹15 per gram.
- A crucial factor that needs to be noted is that the fineness of silver determines its purity—900, 925, 999 etc. Silver with a fineness of 999 silver is considered to be pure silver. Please note that hallmarking of silver is not mandatory, unlike gold. Moreover, buyers can ask sellers to get it hallmarked at minimal charges if the silver ornament is not hallmarked.
- Buyers need to be mindful that, nowadays, jewellers offer rhodium or gold plating on the silver to prevent the formation of a black coating due to corrosion.
Critical Factors Affecting the Price of Silver
Listed below are the essential factors that determine the price of silver in India:
- Supply and demand
In India, the demand for silver will remain high as people consider it auspicious. Its increasing usage is an essential factor behind its high demand. Historically, it has been observed that variation in silver’s demand and supply ratio also increases its rate.
An important reason behind the popularity of silver is their ability to protect investors against inflation. However, prices of silver increase because of inflation.
- Gold prices
Gold and silver prices are directly proportional to one another. So, if demand for gold increases, it will lead to a rise in gold rates and, subsequently, silver rates. Similarly, a decrease in gold rates will result in a reduction in silver rates as well.
- Technology and electronic trends
Demand for silver has increased with the rise of the IT industry in India. It is irreplaceable in manufacturing electronic goods, including printed electronic boards, TV screens and PV cells. Consequently, technology and electronic trends affect the prices of silver in our country.
- Interest rates
Interest rates of silver act as an indicator of overall market conditions. Its prices share an inversely proportional relationship with market interest rates, mainly because these investments focus on long-term value appreciation instead of short-term returns.
- Crude prices
Mining silver is an exhaustive process that demands high energy. So, its rate is directly influenced by changes in oil prices. In addition, imported silver demands a consistent oil supply and a robust logistics platform. So, a change in oil prices will lead to a change in silver prices.
- Government of India and RBI guidelines
Macroeconomic policies and related changes affect the prices of silver because it is a precious and popular commodity in India. It should be noted that many central banks worldwide engage in transactions of silver bullion while keeping gold as their reserve.
Can I Purchase Silver Without GST?
Listed below are important points:
- First, please note that no commodity purchase is entirely tax-free.
- So, buyers must pay GST while buying silver in physical form.
Silver investments are a good option for growing wealth. People already possessing silver ornaments, utensils or bullion need to know the details of taxes on silver in India. The taxation of capital gains will depend on the holding period of the investments. In addition, GST is payable on silver assets and making charges of silver jewellery.