Chapter 71 - GST on Diamond: Taking a Deeper Dive

• Understanding the different types of GST (Goods and Services Tax) on diamonds can be complex as the industry falls under multiple tax slabs.
• The GST on diamonds can vary depending on whether it can be classified as composite, mixed supply, making charges and other categories.
• The place of supply of the diamond can also impact the GST on diamonds.

Calculating GST (Goods and Services Tax) on diamonds can be a difficult endeavour. Because of the various types of slabs and classifications of the taxation of diamonds, there are a lot of variations to the taxes that apply to diamonds.In this blog, we will take a closer look into the specifics of the GST on diamond jewellery.

It can be a little challenging to determine whether GST applies to diamonds and diamond jewellery because this sector is subject to multiple GST tax slabs.The GST rate on cut and polished diamonds was increased from 0.25% to 1.5% following the 47th GST Council meeting. The initial announcement, 7/2018-Integrated Tax (Rate), issued 25 January 2018 lowered the GST rate on diamonds (only cut and polished) from 3% to 0.25%. Additionally, there is a 0.25% GST charge on rough or sawn diamonds.

Additional Details on GST Applicability

The gem and jewellery sector is still subject to a 1.5% GST rate for job work charges and an 18% GST rate for bank charges, certification, grading, and other input services.The situation changes when cut and polished diamonds are used to create wearable jewellery, even though they are subject to a 1.5% GST. This is due to the fact that diamond jewellery is subject to 3% tax and requires job work expenses. These diamonds typically go well with other semi-precious or precious stones that are subject to varying GST rates. Assessing the Impact of GST on Diamond Jewellery The GST rate on diamond jewellery is 3% as of the current GST rates. In addition, a fixed GST charge of 0.25% is applied on unfinished precious stones. As before, there is still a 10% import tax on diamond jewellery.Here is a table that illustrates the application of GST on diamonds:

To better understand GST on diamonds, you need to look at the various Harmonized System Nomenclature (HSN):

Calculation of GST on diamond jewellery is not a straightforward process. Different cases of diamond jewellery will have different types of GST that will be applied. Case 1: Composite Supply Diamond jewellery with precious stones is considered a composite supply since diamonds are the principal supply. The entire jewellery piece is taxed at 3% GST under HSN 7113. Case 2: Mixed Supply If a jeweller bundles diamond jewellery with an expensive watch in a promotion, it qualifies as a mixed supply. The highest GST rate (18% for watches) applies instead of 3% for jewellery. Case 3: Making Charges Jewellery priced at ₹5 lakh with ₹50,000 in making charges is taxed as a whole at 3% GST. The making charges, even if billed separately, are included under the principal supply. Case 4: Old/Used Diamond Jewellery – GST Exemption A jeweller buying old jewellery from a customer isn’t liable for GST, as it isn’t a business transaction under Section 9(4). However, if the seller is a registered entity, GST applies to the resale, but ITC can be claimed. Case 5: Buying New Jewellery in Exchange for Old GST applies to the full value of new jewellery, even if old jewellery is exchanged. If a customer trades ₹1 lakh worth of old jewellery for a ₹2 lakh new piece, GST (3%) is levied on ₹2 lakh, with the old jewellery’s value deducted from the final bill. Case 6: Job Work for Diamond Jewellery Registered job workers pay 1.5% GST for jewellery manufacturing. However, reworking or repairing old/exchanged jewellery is classified as labour work and taxed at 18% GST.

To get a deeper understanding of GST on diamonds, you should understand the different components of GST on diamonds. Place of Supply Under Section 10 of the IGST Act, 2017, the place of supply for gems and jewellery is where the jewellery’s movement ends. Intra-state sales (within the same state) attract CGST and SGST, while inter-state sales are subject to IGST.For imported unpolished diamonds later exported, per GST Circular No. 27/2019, the place of supply is the recipient’s location if available; otherwise, it defaults to the supplier’s location. Time of Supply GST on diamond jewellery is payable when the jeweller receives payment or supplies the jewellery, whichever occurs first. e-Invoicing The 35th GST Council mandated e-invoicing for registered businesses exceeding a turnover threshold, which may extend to those earning ₹5 crore annually in the future.

Jewellers can claim ITC on all purchases for business purposes, except those restricted under Section 17(5) of the CGST Act. ITC can also be claimed on GST paid for services from unregistered job workers under the reverse charge mechanism.

The GST structure for diamonds involves varying rates depending on the state of the diamond, from rough stones to finished jewellery. Understanding these distinctions, along with the application of HSN codes and ITC, is crucial for both consumers and businesses within the diamond industry.To simplify GST calculations on diamond jewellery, you can use our GST Calculator for accurate estimates.It is important to remember that GST laws can be updated, so it is always important to keep up to date with the newest information.