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GST On Gold: A Detailed Guide for Gold Buyers

Updated: May 29

GST On Gold: A Detailed Guide for Gold Buyers

Due to its long-term value, gold has always been considered a valuable metal and is invested in by many. However, investors should be aware of some tax ramifications when purchasing or disposing of gold bars. Gold bars are subject to several taxes, including the Goods and Services Tax (GST). Selling gold jewellery to the public is regarded as a composite supply of goods and services as per Section 8 of the CGST Act. The gold that is used is considered a good, and adding value or charging for it is associated with employment. 

Whether or not manufacturing costs are reported separately, a 3% GST rate will be applied to the whole value of jewellery since the sale of gold is the main source of supply. In its sector-specific FAQs on what is GST on gold, including the rate of GST on gold, the CBIC clarified this. We will define GST, discuss how it relates to gold, and go over some important considerations when purchasing or disposing of gold bars in this blog post.

 

Table of content

 

What is GST on Gold?

The Goods and Services Tax (GST) that is imposed in India on the acquisition, production, and import of gold and gold jewellery is known as the "gold tax." Different rates are applied to different parts of gold transactions under the GST framework. For example, when people buy gold jewellery, they have to pay GST on the gold value as well as the manufacturing costs. Different GST rates apply to the import, purchase, and making charges of gold. The value of the gold is subject to a 3% tax, while making charges is subject to a 5% tax.


It is noteworthy that there is no GST applicable when selling old gold or exchanging it for new jewellery. This feature enables people to exchange their old gold products for new ones and save money on taxes. Demand for gold has declined as a result of the introduction of GST, which has raised the price of the precious metal overall. On the other hand, several trade agreements and exemptions assist in lowering the GST burden on gold exporters, increasing their competitiveness in the global market. The following are the details of the classification of GST on gold:


HSN Code 7103, 7104

  • Semi-precious and precious stones (apart from diamonds), whether or not they are graded or worked but not mounted, strung, or set: GST Rate- 0.25%

  • Ungraded precious and semi-precious stones (aside from diamonds) that are temporarily strung for ease of transportation (this category includes artificial or reconstructed stones in addition to unworked, simply sawn, or crudely shaped stones): GST Rate- 0.25%


HSN Code 7101, 7102, 7106, 7107, 7108, 7109, 7111, 7113, 7114, 7116, 7118

  • Diamonds, gold, pearls, silver, or gold- or silver-based jewellery, and so forth; artificial or reconstructed stones, raw or thinly cut, or angularly shaped: GST Rate- 3%


HSN Code 9988

  • Work involving cut and polished diamonds, plain or studded gold and silver jewellery, and so forth: GST Rate- 1.5%


Calculation of GST on Gold

The process of calculating GST on gold is figuring out the jewellery's final cost, adding the weight of the gold, charging for it, and applying the relevant GST rates. 

Price of gold x Weight in gm + Making charges + GST levied at 3% on the (price of jewellery + making charges) is the typical method for determining the final price. 


The daily gold rate is announced by the city's jewellery organisation, and jewellery makers' prices can differ from one another. When determining the ultimate cost of gold jewellery, it is important to take the GST rates for both the gold value (3%) and the making charges (5%) into account.


Illustration:

The weight of the 25-gm gold ornament that Mrs. A wants to buy is Rs. 60,000 for every 10 gm of gold. 10% of the gold value is the ornament's manufacturing fee. 

  • To start, we must figure out how much 25 gm of gold will cost: Gold costs (60,000/ten gm) times 25 gm, or Rs. 15,000.

  • Next, we ascertain the charges that are made: 10% of Rs. 150,000 − Making charges = Rs. 15,000

  • At this point, we figure out the GST that was applied to the gold value and manufacturing costs: GST on gold value is Rs. 4,500 (3% of Rs. 150,00). GST on creating fees is equal to 5% of Rs. 15,000, or Rs. 750.

  • Lastly, to determine the overall cost of the gold ornament, we add the gold price, manufacturing costs, and GST: Total cost is equal to the gold price plus making charges plus GST on the gold value plus making charge GST. Total expense = 150,000 + 15,000 + 4,500 + 750 = 170,250


GST on Gold Purchase and Gold Making

According to Section 8 of the CGST Act, selling gold jewellery or decorations to the general public is regarded as a composite supply of goods and services. The gold that is used is regarded as a good, and any value addition or charges are applied to job work. Whether or not making charges are reported separately, the GST rate of 3% will be applied to the entire value of jewellery since the sale of gold is the primary source of supply, as opposed to the 5% rate. In its sector-specific FAQs on the GST on gold, including the GST on gold rate, the CBIC has explained this. Businesses that mine and distribute gold are subject to the same GST registration threshold limits as regular taxpayers. Furthermore, companies who sell gold can use the composition method provided by section 10 of the CGST Act.


Many gold sellers, merchants, and jewellers hire goldsmiths and specialists to work on the gold bars or gold biscuits they supply in order to create jewellery. It qualifies as a service supply. The goldsmiths will bill for their services using a system known as "making charges," which will be subject to 5% GST. In case these specialists or goldsmiths are not registered under GST, the jeweller or gold merchant is required to pay GST at a rate of 5% using a reverse charge mechanism. Customers who visit goldsmiths on their own must also pay 5% GST if the goldsmith is GST registered.


If unregistered people swap gold ornaments for new ones at jewellery stores or sell gold jewellery, GST is not applied. It is not regarded as a business advancement and is not covered by the GST. However, GST is applied on the value of used gold jewellery determined in accordance with rule 32(5) of the CGST Rules, provided that the requirements are met. This applies to dealers and gold firms like Attica Gold Company, Aashraya Gold Company, Manappuram Gold Loan, etc. that buy and sell used gold jewellery. Jewellery repair services are deemed manufacturing costs, and a separate 5% GST fee is applied.


Impact of GST on Gold

The Indian gold sector has been significantly impacted by the introduction of GST. The following are a few direct effects of GST on buying gold:

  • The introduction of Goods and Services Tax (GST) on gold has caused its price to soar. The total demand for gold has decreased as a result of the tax rate increase from 1.2% to 3%. The rising price of gold has not only reduced demand for it but also affected the liquidity of holding this valuable metal. A 5% tax on the costs associated with creating gold jewellery is implied by the GST on jewellery in 2023. GST is often applied as either a flat charge or a predetermined gold GST percentage to gold jewellery. Because of this, jewellers frequently charge different prices, which has an impact on the GST on gold coins and jewellery. In addition, a number of variables contribute to the increase in gold prices, such as the impending introduction of GST on gold ornaments in 2023, increased liquidity, volatile currency rates, a decline in gold mining operations, and an increase in foreign exchange rates.

  • Gold dealers are required by the Goods and Services Tax system to keep records of each transaction. It is anticipated that this will improve industry accountability and openness. Remarkably, barely thirty percent of this industry fits the definition of organised. 

  • Benefits such as the Free Trade Agreement with nations such as South Korea have made it possible for GST-registered importers to import gold without paying an extra 10% in customs duties.


Exemptions for GST on Gold

Indian exporters of gold jewellery profit most from GST exemptions on gold. An exception for the supply of gold made by a designated agency to registered jewellery exporters was announced at the 31st GST Council meeting. With this exemption, exporters will pay less in GST, increasing the sector's competitiveness in the global gold market. Moreover, registered jewellers are eligible to receive a 2% Input Tax Credit on the 5% making charges. It's crucial to remember that these exemptions are only intended to help exporters of gold jewellery; domestic consumers will not gain from them.


E-way Bill Regulations for Gold

According to CGST Rule 138(14), prior to September 13, 2022, the transportation of gold in any form—including jewellery, goldsmith's products, and other items—did not require the creation of an e-way bill (Chapter 71). Therefore, gold could be carried without an e-way bill, independent of the recipient's or supplier's status on their GST registration. However, as per the information provided by the states, a change happened on September 13, 2022, when the National Informatics Centre (NIC) launched a specific online platform for creating e-way bills meant only for the transportation of gold, gold jewellery, and precious gemstones.


Conclusion

The gold sector has seen significant changes as a result of the introduction of the GST on gold. The entire cost of gold and gold jewellery has gone up due to multiple GST rates applied to different components of gold transactions, such as the 5% tax on manufacturing costs and the 3% rate on gold value. The demand for gold and its liquidity as an investment have been impacted by this. But the hitherto mainly unorganised gold market has benefited from increased accountability and transparency thanks in part to the GST system. Businesses now find it simpler to calculate the right GST rates, keep accurate records, and create invoices thanks to the HSN codes.


FAQ

Q1. How much is the GST on gold in India?

Compared to most other commodities and services, the GST rate on gold is comparatively lower. In India, the GST rate on gold, or the GST on gold coins, is 3%. Depending on whether the sale is intrastate or interstate, this rate is levied as the sum of the 1.5% CGST and SGST or as simply the 3% IGST rate. Additionally, 5% of the price is the total rate of GST applied to the charges made by jewellers to produce gold.


Q2. What is the GST rate on gold bars?

The central GST (CGST) and state GST (SGST) components of the 3% GST rate apply to gold bars. The rates for SGST and CGST are both 1.5%.


Q3. What is the GST rate on gold jewellery?

On gold, the government has imposed a 3% GST rate. Jewellers are required to charge 5% GST on their gold-making charges, which is calculated based on the pricing.


Q4. How much is the GST on digital gold?

Like with the purchase of real gold, the GST rate on digital gold is 3% on all insurance premium, storage, and trustee fee costs.


Q5. What is the GST rate on 22 carat gold and 24 carat gold?

No matter the purity or carat value of the gold, the GST tax is 3%. For various kinds of gold, including bars, coins, biscuits, or jewellery, the GST rate is likewise the same.


Q6. Can a business owner claim an input tax credit for GST on gold?

A jeweller or gold merchant is entitled to claim the Input Tax Credit (ITC) that was paid on the gold and other job work charges that were incurred as raw materials. The gold merchant is eligible to claim the Input Tax Credit (ITC) on taxes paid on a reverse charge basis for supplies made by unregistered job workers.


Q7. Can an individual claim GST on gold?

An individual who imports gold and sells it in their business may be subject to 3% IGST. He is entitled to GST on imported gold. However, tax credits are not available to anyone who is not involved in the gold industry.


Q8. When trading in old gold jewellery for new gold jewellery, is GST applicable? 

No, in India, GST is not applicable when you exchange old gold jewellery for new gold jewellery.


Q9. Is an e-way bill required for transporting gold?

An e-way bill does not need to be generated until the CBIC notifies of the withdrawal of the gold exemption in Chapter 71. NIC has, nevertheless, modified the technology to produce an e-way bill for the transportation of gold during a different window.




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