GST on Gold - Impact of Gold GST Rate, Calculation & Exemption

The implementation of the Goods and Services Tax (GST) on July 1st, 2017 marked the beginning of a new era in taxation in India. Investors, consumers, and manufacturers alike have eagerly awaited news related to the new tax slabs. The GST has replaced several indirect taxes, including VAT (Value Added Tax) , Service Tax, and Central Excise Duty. Under the new tax regime, the government proposed three tax slabs: CGST, SGST, and IGST.

This article discusses the GST on gold in various forms, including the tax on the making charges on gold jewellery that was introduced under GST. Despite this, basic customs duty is still collected on the import of gold from other countries, along with the levy of IGST.The latest update on this matter is that, as of February 1st, 2021, the Union Budget 2021 has reduced the basic custom duty on gold and silver from 12.50% to 7.50%. However, an additional cess called the Agriculture Infrastructure and Development Cess (AIDC) will be levied at 2.5% above it.According to the GST law, gold bars or gold jewellery fall under the definition of 'goods'. Under Section 7 of the CGST Act, the supply of gold (without any job work) is considered the supply of goods.

Historically, gold has been one of the favorite investment options for Indians. In today’s world, every occasion is commemorated with the purchase of gold ornaments, coins or biscuits. However, the implementation of the Goods and Service Tax (GST) in 2017 had a significant impact on not only the gold trade but also on the retail price of gold. Moreover, varying gold GST rates on different types of gold trade also make the tax filing process complicated for gold traders and manufacturers. Let us take a look on the following table for the changes of tax rates before and after GST:

The price of gold has been fluctuating since the Goods and Services Tax (GST) regime was implemented. Although there were concerns that the tax would reduce the demand for gold due to high taxes, the price has actually risen due to unstable markets.The import duty on gold remains at 10%, with an additional 3% or 5% GST on making charges, depending on whether the goldsmiths are registered under GST. The demand for gold in overseas markets has increased due to the weakening US dollar, and the long-term outlook for gold rates in India after GST is positive.However, there are fears of increased smuggling due to the high cost of buying gold, and consumers are not happy with the rising cost. GST is not charged on the exchange of gold ornaments or second-hand gold jewellery, but repair works on jewellery will be charged separately at 5% GST.Also Read: GST On Life Insurance

GST is levied on gold in different ways, depending on the transaction.When you purchase new jewellery:

• 5% GST is charged on the making charges.
• For imported gold, 10% GST is charged as Custom duty.
• For using gold to make new jewellery, the GST rate is 3%.
• If the sale of gold is the main transaction, the GST rate of 3% is applied to the total value of the jewellery, including making charges.

To calculate the price of gold, the price of gold per gram is multiplied by the weight in grams, and then the making charges and 3% GST are added.For example, if the price of gold is Rs. 40,000 per 10 grams and making charges are 10%, the price of jewellery would be calculated as follows:Price of gold (Rs. 40,000 per 10 grams) x weight in grams + making charges + 3% GST.

The example above shows that the price of gold has increased under the new GST tax structure, compared to the previous tax system. This increase is despite a lower demand for gold in the market. The prices have gone up by approximately 0.75% due to the additional taxes levied on gold, which includes 3% GST on top of the 10% import duty. Under the old tax structure , customers had to pay VAT and service tax, which totaled to 2%. With the new GST structure, the rate has increased to 3%, leading to an overall increase in the price of gold.

After the implementation of GST in our country, the import of gold has increased. Importers have increased the import facility not only for the advantage of the current tax revisions but also as a benefits under the Free Trade Agreement with South Korea. The importers import the gold without the payment of 10% custom duty under this agreement.

Due to the huge demand for this metal in our country,India has the highest imports of this globally. Out of all the demand for this metal, on an average, some portion of the demand is met through illegal means i.e., by being smuggled into the country through alternate routes. This becomes the unorganized sector of gold. Due to the increment of the prices of gold after the introduction of GST, the smuggled gold in our country increases as compared to the ratio before the implementation of GST.

It is important to note that while the implementation of GST has led to an increase in compliance requirements for gold traders in the organized sector, it has also brought in more transparency and accountability. The fear that it may drive traders towards the unorganized sector is a concern, but it is important to ensure that all gold transactions are reported and accounted for to prevent tax evasion.Moreover, the GST exemption on gold exports by notified agencies has made Indian gold exports more competitive on the global market, leading to growth opportunities for the organized gold sector. While there may be short-term challenges for the organized sector, the long-term benefits of increased transparency and competitiveness are likely to outweigh them.

At the 31st GST council meeting held on December 22, 2018, it was announced that a GST exemption would be granted for the supply of gold made by a notified agency to GST-registered gold jewellery exporters. This move has helped to reduce the GST burden on Indian gold jewellery exporters, making Indian gold exports more competitive on the global market. However, the exemption does not apply to domestic buyers of gold jewellery.

A jeweller or gold merchant is eligible to claim an Input Tax Credit (ITC) on the raw materials used, such as gold, and on the job work charges incurred. In cases where the gold merchant pays tax on a reverse charge basis for supply from an unregistered job worker, they can still claim the ITC on the tax paid.