The GST effect the market for several commodities, including gold, to a great extent. Gold & silver are one of the few items that attract different GST rates at different levels, right from purchasing to manufacturing. As a result, GST on gold & Silver applies to both on the supply of the precious metal as well as on the manufacture of gold ornaments. Before GST, 1% excise duty was levied on gold and around 1% was levied by most of the states as Value Added Tax (VAT). GST Council has decided 3% rate of GST on Gold and Silver as per the provisions around one per cent higher than what was in the old tax regime. In addition to this, the government has also fixed 5% GST on making charges. Gold will continue to attract an import duty of 10% on import of key products. As per GST regime, prices of Jewellery will be high as compared to old tax regime as the tax burden is more. In this article we will understand more in detail about impact of GST on gold and silver.
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What is GST on Gold?
GST is levied on purchase gold jewellery by individual. In addition to this, they have to pay GST on making charges as well. As per the provisions, import, purchase and making charges of gold attract different GST rates. Moreover, one does not have to pay taxes on purchasing new gold in exchange for old gold items.
Table showing GST rate on gold & silver:
| Particulars | Pre GST | Post GST |
| VAT | 1% | Nil |
| Sales Tax | 1% | Nil |
| Making charges | Nil | 5% |
| Import duty | 10% | 10% |
| GST rate(on value) | Nil | 3% |
Calculation of GST:
There is no such standard pattern of calculating GST in this sector because of varying billing systems among jewellers.
But the basic formula used in this sector for calculating GST is:
Price of gold X Weight of gold (in grams) + Making charges + GST applied at 3% on the (price of jewellery + making charges)
GST Exemptions on gold:
The aim of such exemption is to reduce the GST burden of gold jewellery exporters and to make the Indian gold export sector more competitive in the international market.
The GST @5% is charged as making charges and registered jewellers can claim an Input Tax Credit of 2% on such expenses. However, the said exemption is only available for gold jewellery exporters, domestic buyers cannot take any benefit from it.
Things to Consider Before Buying Gold Ornaments:
Investors who wants to invest in gold must keep a few things in mind:
- They should only purchase gold jewellery that is hallmarked, or BIS certified which shows its purity.
- The price of gold is depending on its finesse. Low quality of gold come in low per gram price and also attracts a lower GST on gold. 24 Karat is the highest quality of gold; it is not suitable for making jewellery. Normally, 22 Karats, 18 Karat and 14 Karat gold is used for making jewellery.
- The price of gold is not fixed and change daily because of the factors including – its demand and supply, import duty, currency fluctuations and norms of the Indian jewellery market etc. Such factors and their influence tend to impact gold GST rate on transactions frequently.
Changes in Provisions related to Gold:
After introduction of GST a lot of changes come in the provisions related to job work, on goods sent for approval, jewellery sent for exhibition etc. What changes introduced related to this are given below:
1. Job Work for Jewellery Sector:
- Prior to the GST regime, we can send the Gold and silver for Job Work without paying any duty but the same shall be received back after completion of job work or within 180 days of their being sent for Job work, whichever is earlier.
- Under GST,gold and silver can be removed for Job Work without paying any tax provided prior intimation to commissioner is necessary. According to the ITC rules, under the cover of challan issued by the principal, inputs shall be sent to Job Workers and the detail of challan for Gold and silver dispatched to the Job Worker shall be furnished in GSTR-1 for that period.
- The Jewellery can be received back to the principal’s place without paying any tax or to the customers’ premises on payment of taxes mentioned in the provisions, within 1 year of their being sent for Job Work.
- If the gold and silver has not received back within 1 year then the date on which the same sent for Job Work is date of supply of Gold & silver and taxes with interest shall be paid respectively.
- Principal shall be liable to maintain the record of Gold sent for Job Work. Place of Job Worker shall be declared as an additional place of business by the principal in case Job Worker is unregistered in GST.
2.Input tax credit (ITC) in Case of Job Work:
The Principal is entitled for ITC on inputs sent for Job Work provided the Jewellery received within one year after completion of Job Work.
In case, the inputs are directly sent to Job Workers for further process then, the date shall be counted from the date of receipt of inputs by Job Worker.
3.Jewellery Sent for Approval:
Prior to GST regime, there was no tax and no time limits for Jewellery sent on Approval.
Under GST regime, if the Jewellery sent for approval then, for the same delivery challan should be raised.
As per the provisions, it is mandatory that the invoice for Jewellery sent for approval shall be raised earliest of the following: –
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- Time when it becomes known that supply has taken place.
- Six months from the date of removal.
4.Ornaments Sent for Exhibition or for the Purpose Of Other than Supply:
If the Ornaments sent for exhibition in the same state, then the same shall not required to raise delivery challan.
In case the ornaments sent for exhibition in other state then the person is required to obtain registration in such other state as causal taxable person (CTP).
For the purpose of obtaining registration as Causal Taxable Person, he has to comply with all the following conditions:
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- The application for registration shall be made at least 5 days prior to the commencement of business
- Estimated liability of tax shall be paid in advance. The amount so paid is only used for paying his liability of tax
Conclusion:
There has been a clear increase in the gold rate after GST, which has increased prices, which leads to decline in demand. The tax hike under GST shall also encourage more smuggling into India. A higher import duty could also increase illegal imports. Similarly, under GST, the higher taxes is likely to force more transactions into the black market. Smaller shops start selling without receipts, and potentially hitting sales of big jewellers who are stick to the rules and regulations.
