GST on Gold: Impact on Gold & Its Price, GST Rate, How to Calculate
Gold is an essential purchase in every household in India, be it for personal use or for investment. Traditionally, Indians trust gold more than any other asset class. While we agree on gold’s value as an investment instrument, it is crucial to understand how the purchase of physical gold is taxed in India.
In 2017, the government introduced the GST regime with the aim of simplifying the indirect taxation system in the country. GST replaced all other types of indirect taxes that used to be levied earlier- VAT (Value Added Tax), sales tax, purchase tax, central excise duty, customs duty, etc. Purchase of physical gold also comes under the purview of GST. Read on to learn more about how GST is levied on gold investments if you choose to invest in physical gold.
What is GST on Gold?
GST on gold applies at different levels of the value chain. It is applicable at the manufacturing stage, the refinement stage, and at the point of sale. The raw material, crafting process, and finished product are all subject to GST at varying rates. Every time you purchase physical gold or gold jewellery, GST is payable on the bill amount.
Making Charges: When you buy gold jewellery, making charges are added separately to the value of gold. A jeweller hires artisans and goldsmiths to craft intricate designs. There are making charges that the jeweller incurs for this value addition. The making charge is billed separately to the customer to pay for the artistry of crafting the ornament.
These charges vary from one piece of jewellery to another, depending on the intricacy of the work. Different jewellers can charge different rates for making charges. Gold buyers must pay a separate GST on the making charges. The overall making charge and GST are added to the price of gold in the final bill to the buyer.
Read More: Sovereign Gold Bond Scheme- Things to Know
What Are The GST Rates On Gold Jewellery in 2023?
Up until 2023, the taxation system on gold, GST in specific, has been done with regard to the weight of the gold, along with its purity. With the latest amendment by the Indian Government, gold will now have a fixed calculation for GST at 3%.
GST Rates On Gold Jewellery Making Charges
When it comes to the purchase of gold, a major chunk of the demographic purchases well-designed gold with intricate carvings. This is a value addition that pertains to jewellery making, which is a service in and of itself. That being said, this jewellery-making is also taxed. While the GST for Gold itself lies at 3%, the making charges for it are fixed at 5%.
Impact of GST On Gold Ornaments Prices, Imports & Exports
GST has had a rather significant impact on the prices of gold ornaments, its imports and exports. It is important to understand that GST is a composite tax which subsumes all indirect taxes, including excise duty and VAT. This has led to a marginal increase in the price of gold. Regarding the imports section, you have to pay a standard 3% on the gold purchased and customs duty as well. Let’s take a look at each of the implications in detail and how it has affected the gold purchase.
Impact of GST On Gold: Comparison of Gold Prices Before and After GST
The following table gives a quick comparison of how gold was taxed before the introduction of GST and how it is taxed under the new GST regime:
|Value Added Tax||1%||NIL|
|GST on Making Charges||Nil||5%|
Effects of Goods and Services Tax on Gold Imports
The initiation of GST in India was a game-changer in the arena of taxation. This also spills into the world of importing when it comes to purchasing gold. Gold is taxed at 3% at a set mark, which is on top of the customs duty levied. The customs duty has been varying for years now, with it rising from 10% to 12.5% for gold bars and 11.85% for Gold dores from 2017 to 2019.
At the insistence and requests from gold traders, the government reformed the rates again in 2021 with a customs duty of 7.5% for gold bars and 6.9% for the dores. These fluctuating customs duty rates actively influence consumer behaviour, thereby influencing the whole import landscape altogether.
Impact of GST on Gold Exports
The Goods and Services Tax (GST) brought big changes for gold sellers in India. It replaced old taxes like excise duty and VAT, making things cheaper for them. This change gave Indian gold a better chance in the worldwide market, especially since GST doesn’t apply to exports.
Also, instead of dealing with many government offices, sellers now work with just one under GST, making tax tasks easier. This also cut down on a lot of paperwork. Thanks to these changes, gold sales went up. In 2022-23, India exported over 1000 tonnes of gold, the most in over ten years. In short, GST really helped make India a strong player in the global gold trade.
Effect of GST on Ornaments
When buying gold in India, you’re essentially looking at two main charges: the base price of the gold and the craftsmanship that shapes it into jewellery. Now, with the GST system in India, a 3% tax rate is tagged onto gold jewellery. This charge is primarily because you’re mainly purchasing gold. However, consider a scenario where you hand over raw gold, like a biscuit, to a craftsman to design a piece of jewellery.
In this case, the making charge gets a 5% GST because the main task is about crafting that raw gold into a beautiful ornament. Similarly, if you’re just getting your gold jewellery mended, that repair service will again have a 5% GST. So, whether you’re buying new, crafting from raw, or mending the old, GST has its role, but how much you pay can differ based on the situation.
Impact of Organised & Unorganised Sectors of Gold
Unorganised Gold Sector in India:
In India’s total gold imports, which range between 700 to 800 tonnes, there’s a shady part. Around 30 tonnes are sneaked in illegally, mostly via the Middle East. This part is the unorganised gold market. Now, the folks who sell gold in India are asking for a big cut in the GST and other taxes on gold. They believe that if the taxes are less, there might be less reason to smuggle gold into the country.
Organised Gold Trade and GST:
The main idea behind GST was to make business clearer and more responsible, especially in the organised gold market. But there’s a catch. With GST coming in, gold has become pricier. Now, only a third of the gold business in India is on the books, and there’s worry this might go down more. The gold sellers think that if the government makes the import tax lower, more gold businesses might prefer to stay in the organised market.
How is GST Calculated on Gold?
In India, gold prices are not standard and vary from city to city. The reason for this is the variable making charges, labour rates, type, state taxes of work, etc. You can check the gold rate in daily newspapers and media under the ‘Gold Rate today with GST’ section.
The formula for calculating gold price, including GST, on gold jewellery is:
Gold Price (inclusive of GST) = Gold Price per gram x Weight of gold in grams + Making charges + GST on making charges + 3% GST on Gold Value
Let us understand the calculation for GST on gold purchases in the table below.
We are assuming gold purchases worth Rs. 2,00,000 to understand the GST on gold ornaments.
|Gold Price (hypothetical)||2,00,000||2,00,000|
|Value for Service Tax||2,20,000||2,25,000|
|Value for VAT||2,22,000||2,25,000|
|Value for GST||2,24,220||2,27,500|
|Total value of gold||2,24,220||2,33,250|
|Making Charges @10% on (Base Price + Customs Duty)||22,000||25,050|
|GST on Making Charges @5%||1,100||1,253|
|Final Gold Price||2,46,220||2,59,553|
As you can see, the prices are higher under the new GST regime.
GST Exemptions On Gold
In a meeting held by the GST Council on 2018 December 22nd, with it being the 31st such meeting, they announced a GST exemption on gold supply. According to this announcement, gold provided by specific suppliers to GST-registered gold exporters won’t have GST applied to it. This measure was introduced to reduce the tax pressure on gold exporters in the nation.
Input Tax Credits for GST on the Gold Jewellery Business
In simple words, ITC, or Input Tax Credits for GST, is a mechanism that allows businesses to get back some of the money that they paid in the form of GST for all the inputs of production.
For gold traders, the ITC system allows them to get credits when purchasing materials like gold, silver, or diamonds. However, there’s a catch: the costs of crafting these materials into jewellery don’t qualify for ITC. To tap into ITC benefits, these traders should register under GST, ensure they’re issuing and collecting correct invoices, and diligently track all their GST transactions.
With lesser taxes, gold traders can enjoy higher profits. This also positions them to offer more competitive prices in the market. Additionally, they benefit from improved cash flow since they’re paying reduced taxes. Plus, utilizing the ITC system clearly indicates that they abide by tax regulations.
6 Crucial Things to Consider Before Buying Gold Jewellery
Investing in gold is no small investment. Therefore, ensuring a bunch of knowledge checklists when it comes to it’s purchase is imperative. Let’s take a look at some of them:
- Understanding the Gold Rate: Gold prices fluctuate across cities due to variables like demand, local charges, and taxes. It’s crucial to know the rate in your city when making a purchase.
- Hallmark for Assurance: Hallmarking validates the purity of the gold you buy. Ensure the gold adheres to the standards set by recognized authorities.
- Deciphering Purity: The gold’s authenticity is represented either by its ‘Karat’ or by the ‘Fineness’ system. Familiarize yourself with these terms to judge quality accurately.
- Cost Beyond the Glitter: The final price isn’t just the gold; “making charges” are added based on the design’s intricacy and craftsmanship. This could inflate the item’s cost by 8-10%.
- Addressing Wastage Charges: Crafting gold can result in wastage, which affects the end price. Be mindful that designs, especially those with gemstones, can lead to higher costs.
- Buyback Policies: Your jeweller’s buyback policy determines the future value of your purchase. This term specifies the return value based on contemporary gold rates, not the purchase rate.
Income Tax on Different Types of Gold in India: Digital, Physical and Paper
Physical Gold Investment Taxation: The attractiveness of tangible gold often leads many to invest in it, but it’s crucial to understand the taxes associated with it.
- Short-term: Sales made within 36 months of purchasing physical gold are treated as short-term capital gains. The profit is amalgamated with your annual income, and you’re taxed according to your prevailing income tax slab.
- Long-term: For sales made after 36 months, the profit is regarded as long-term capital gains. Investors will incur a 20% tax on these gains, plus any applicable surcharge and an additional 4% cess. Additionally, a Goods and Services Tax is payable when purchasing physical gold.
Paper Gold Investment Taxation: Investing in gold via paper forms, like ETFs or mutual funds, has its tax particulars.
- Gold ETFs and Mutual Funds: These investments are taxed similarly to physical gold. Short-term gains (up to 36 months) are added to your overall income and taxed as per your slab rate. For long-term gains, a 20% tax is levied, along with a 4% cess.
- Sovereign Gold Bonds (SGBs): Investors receive an annual 2.5% interest on their SGBs, taxed as “income from other sources.” After holding SGBs for 8 years (maturity), any returns are completely tax-exempt. However, if you decide to liquidate SGBs post the 5-year lock-in period but before maturity, the gains are treated as long-term capital gains, attracting a 20% tax, a 4% cess, and a surcharge.
Digital Gold Investment Taxation: Digital gold, a modern and convenient mode of investment, particularly resonates with the younger generation. While it offers ease of access, the tax implications mirror those of physical gold.
- Short-term: If you own digital gold for less than 36 months, any gains aren’t directly taxable. Instead, these gains are added to your overall income, and the tax is levied based on your slab rate.
- Long-term: Selling digital gold after a holding period exceeding 36 months falls under long-term capital gains. Here, a 20% tax is applicable on the profit, compounded with a surcharge, plus a 4% cess. So, encashing your five-year digital gold investment will attract these charges, contingent on the holding duration.
Points to note:
- As an investor, you must consider that the higher the price of gold, the higher the GST burden on gold purchases.
- 24 or 22-karat jewellery will have a higher gold component and higher GST payable.
- Stones and other gems have different GST rates and need to be billed separately for GST.
- The base price of gold, custom duty and other charges can fluctuate anytime. All these factors increase your GST burden proportionately.
- You must buy jewellery only from a reputed and registered jeweller with a proper bill depicting taxes and GST. This ensures you are purchasing the right quality and purity. It also helps you keep a record of your purchases for any income tax-related queries in the future.
- A BIS hallmark on the ornament guarantees gold quality and purity.
Also Read: Sovereign Gold Bond – Things to know
It is pertinent for an investor to know the tax liability on gold purchases. When you buy physical gold, the price is higher compared to ETFs and Sovereign Gold Bonds due to the additional GST burden.
Therefore, it is important to select the right instrument for gold investment based on various costs involved, such as making charges and the GST on gold purchases. Buying gold ETFs or investing in SGBs might be a better idea if you are looking at gold from a pure investment point of view.
What is the GST rate on gold?
The GST rate on gold ornaments is 3% on the final price. A GST of 5% is levied on making charges for jewellery.
What is GST rate on making charges?
The GST rate on making charges are 5%.
Are there any exemptions on GST on gold?
GST exemption is available to registered gold jewellery exporters and their suppliers under specific provisions.
Why is GST 3% on gold?
This is because the primary supply is on the sale of gold. The sale of the commodity itself gives it a GST tax slab of 3%. It has been revised since the inception of GST, but the current rate stands at 3%.
Can we buy gold without paying the GST?
No. Gold carries a GST tax rate of 3% and 5% for making charges.
Can I sell gold jewellery without paying Goods & Services Tax?
Old jewellery sold between registered parties will not carry the 3% tax. However, the tax will apply if an unregistered supplier sells it to a registered supplier.
How much gold is tax-free in India?
Married women can hold up to 500 grams of gold, unmarried women can hold up to 250 grams of gold, and men can hold up to 100 grams of gold, which is tax-free.
What is the limit of buying gold with cash?
Income tax laws prohibit individuals from buying gold with a cash value of more than Rs 2 lakh in a day or respect of transactions connected to a single event or occasion from another person.
What is the TDS on the sale of gold?
1% of the Sale value. This is deducted by the buyer of the gold and deposited with the government.
What is the GST rate on digital gold?
The GST rate is 3% on digital gold.
Can we claim GST on Gold purchases for personal use?
ITC can be claimed on GST only if the claimer is a GST-registered entity selling gold or is in the business of selling gold.