Tax on Silver in India: A Complete Overview

In Indian tradition, silver is just as important as gold, despite not having the same price tag. Silver plays a treasured part in customs, from using it to decorate homes during festivals and celebrations to giving it as a gesture of love. Not to be overlooked is the classic allure of fine silver jewellery, which has captured people's hearts for ages. Given its emotional and cultural significance, many people may find it extremely helpful to comprehend the tax implications on silver in India. In this article, we will share a detailed overview of tax on silver in India.

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Table of Contents

• Types of Silver Investments

• Tax on Silver Investments

• GST on Silver

• Pre- and Post-GST Silver Prices

• Calculation of Silver Price for Taxation

• Conclusion

• Frequently Asked Questions

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Types of Silver Investments

Given that its value increases with time, silver is frequently regarded as a more accessible and sensible investment for long-term investors. Here are a few well-liked methods for investing in this precious metal:

• Silver Jewellery: Purchasing silver jewellery is a way to own material possessions in addition to being a means of decoration. But it's important to make sure you're purchasing silver of superior quality. The 925 hallmark, which denotes 92.5% purity (sterling silver), is what to look for.

• Bullion Coins or Bars: Silver coins or bars are a great option for people who would rather take a more direct approach. These are available from authorized dealers or banks. The benefit? It's a cost-effective approach to invest because you don't have to pay extra for charges.

• E-Silver: This digital version of silver offers a practical and effective investment choice by doing away with the inconveniences of physical storage and charging.

• ETFs for silver: Another well-liked investment option is silver exchange-traded funds, or ETFs. Physical silver or silver-linked securities account for at least 95% of the assets held by these funds. These ETFs are versatile and liquid as their Net Asset Value (NAV) varies in tandem with the current silver market price.

• Digital Silver: Investors can purchase and sell digital silver assets through certain internet platforms without having to hold the metal in person.

• Silver Futures: Although trading silver futures contracts on commodity exchanges such as MCX entails a higher level of risk and necessitates market knowledge, investors can do so.

Tax on Silver Investments

Here are the tax implications for different types of silver investments:

Taxes on Jewellery and Silverware

Jewellery and silverware sales bear the capital gains tax. Let's examine the specifics:

• Short-Term Capital Gains Tax: Short-term capital gains tax, or STCG, must be paid if silver is sold fewer than 36 months after it was purchased. A person's income is increased by short-term capital gains, which are then subject to taxation at the rates of their income tax bracket.

• Long-Term Capital Gains Tax: If someone owns silver in the form of decorations or cutlery, the proceeds from its sale are considered capital gains. The person has to pay LTCG (long-term capital gains) tax at a rate of 20.8% on selling the silver after holding it for 36 months. This includes a 4% index-adjusted health and education cess.

Taxes on Silver ETFs

• Long-Term Capital Gains (LTCG) Taxation on New Purchases (On or After April 1, 2023): Gains on silver ETFs will be subject to a flat 12.5% tax rate (plus any surcharge and cess) if the holding period exceeds 12 months. Gains on silver ETF FoFs will be subject to a flat 12.5% tax rate (plus appropriate surcharge and cess) if the holding period exceeds 24 months.

• Short-Term Capital Gains (STCG) on New Purchases (On or After April 1, 2023): Profits from silver ETFs held for a period of 12 months or less bear a tax at a flat rate of 20%, w.e.f. July 23, 2024. For silver ETF FoFs held for 24 months or less, the tax rate is the same.

• Taxes for Existing Holders: If current holders redeem their units after July 23, 2024, they are eligible for the new tax system. Gains on ETFs will be subject to a 12.5% tax if the holding period exceeds 12 months. Gains on FoFs will be subject to a 12.5% tax if the holding period exceeds 24 months.

GST on Silver

The production and distribution of silver ornaments are subject to GST. Silver now has a 3% GST rate, and jewellery manufacturing fees are subject to an extra 18% GST. The GST council has exempted gold, silver, and platinum exports from GST in an effort to increase exports.

Pre- and Post-GST Silver Prices

Prior to the Goods and Services Tax (GST) being put into effect in July 2017, India's silver tax system was complicated and differed greatly between states. Silver was subject to a number of indirect taxes, such as local charges, 1% excise duty, and Value Added Tax (VAT) that ranged from 1% to 5%. State-by-state variations in these taxes created a complex pricing system that frequently resulted in price differences between areas. For instance, the VAT rates on silver in areas like Gujarat and Maharashtra might reach 5%, and other governments imposed additional municipal taxes that drove up the price even further. In addition to making the purchasing process more difficult for customers, these numerous taxes posed serious obstacles for companies, leading to disparities in pricing and tax compliance. The price of silver in India has been standardized after the 3% GST rate was applied to all states.

Calculation of Silver Price for Taxation

When determining the price of silver for taxation, the following crucial factors should be taken into account:

The cost of jewellery, manufacturing fees, GST, and hallmarking fees (if any) are all included in the buying price of silver ornaments. The following formula is used to determine the price of silver for taxation:

Silver price per gram multiplied by weight X purity

Illustration: A woman wants to buy a 38-gram silver necklace. According to the jeweller, silver costs Rs. 64 per gram, or Rs. 64,000 per kilogram. Consequently, Rs. 64 X 38 X 0.925 = Rs. 2249.6 is the value of the necklace. In this case, the purity of silver in parts per 1000 is denoted by the number "925." The jeweller will then add GST at 3%, manufacturing charges, and hallmarking charges, if any.

Conclusion

Investing in silver is a wise way to enhance wealth. People who already own silver bullion, cutlery, or decorations should be aware of India's silver tax laws. The length of time the investments are held will determine how capital gains are taxed. Furthermore, GST must be paid on silver assets and jewellery manufacturing fees.

Frequently Asked Questions

 Is there a tax applicable on gold and silver?

Yes, both gold and silver are subject to taxes. You pay GST on the metal's worth and manufacturing costs at the time of purchase. How long you've owned the asset determines the taxes associated with selling or redeeming it:

• If held for less than 24 months, there may be short-term capital gains (STCG).

• If retained for 24 months or longer, long-term capital gains (LTCG) may be realised.

Are capital gains applicable on the sale of jewellery?

Yes, depending on the holding time frame, jewellery sales are subject to capital gains tax.

• Gains from jewellery are taxed according to your income tax rate if they are retained for less than 24 months.

• Gains are taxed as LTCG at a flat rate of 12.5% without indexation benefits if held for 24 months or longer.

• If you sell at a loss, no taxes are due.

Can you buy silver without GST?

No, whether silver is purchased in actual form or as an exchange-traded fund (ETF), GST is applicable.

• The price of actual silver is inclusive of 3% GST.

• Depending on the holding period, you must pay either STCG or LTCG tax when you redeem silver ETFs.

What is the GST rate applicable to silver in India?

In India, silver has a 3% GST charge. This holds true for all types of silver, such as bars, grains, unwrought silver, and silver powder. Prior to GST, silver was subject to both VAT and excise duty; however, a single tax rate now streamlines the tax rate.

How much silver is tax-free?

Silver purchases are not specifically exempt from taxes. Customs charges (if imported) and a 3% GST are applied to any silver purchased. However, unless they are sold for capital gains, minor individual purchases could not be subject to income tax scrutiny.

What is the VAT on silver?

Before the implementation of GST, each state had a different 1% VAT on silver. However, following the GST, the VAT rate is now 3% nationwide

What is the HSN code for silver ornaments?

Silver ornaments have the HSN code 7113. Under the Indian tax system, silver jewellery, chains, rings, and ornamental objects fall under this category and are all subject to 3% GST.

Can businesses claim an Input Tax Credit (ITC) on the purchase of silver?

Yes, companies with GST registrations are eligible to claim the Input Tax Credit (ITC) on silver purchases if they are used for business purposes, like making jewellery for resale. Individual consumers are not eligible for the ITC on silver purchases, but business customers who are registered for GST are.

What is the new tax on silver?

The new silver tax raised the import charge on silver bars and dore from 7.50% and 6.10% to 10%, respectively. The Social Welfare Surcharge (SWS) has been removed, while the AIDC on bar and dore is up to 5.00% and 4.35%, respectively, making the total duty 15% and 14.35%.

Is silver allowed as per income tax?

According to the Income Tax Act, as silver is regarded as a capital asset and is handled as a debt security, investing in silver bullion carries long-term capital gains tax if held for more than 36 months. Silver gains are subject to a 20% tax rate.

How do silver ETFs work?

The purpose of silver exchange-traded funds (ETFs) is to follow the open market spot price. This implies that the Net Asset Value (NAV) of these funds is directly impacted by changes in the price of silver. According to SEBI requirements, fund managers of silver exchange-traded funds (ETFs) keep real silver in standard 30 kg bars that are 99.9% pure in order to maintain security and transparency. In order to confirm the quantity and authenticity of the silver stored, they must also submit auditor reports. The Securities and Exchange Board of India, or SEBI, oversees these ETFs, guaranteeing investor protection and compliance.