The Goods & Services Tax (GST), introduced in July 2017, started a new taxation regime in India. By switching to single-point taxation on all goods and services, the government aims to provide uniformity and solves issues of multiple or compounded taxations.

For gold, the Indian government imposes GST on both the supply as well as the services. When you buy gold jewellery, you have to pay GST on the gold as well its making charges. Additionally, being an imported item, gold attracts Customs Duty as well. At present, here are the applicable rates on purchasing new gold jewellery:
  1. 10% Customs Duty on imported gold
  2. 3% GST on the price of gold used in the jewellery
  3. 5% GST on the making charges

However, you don't have to pay any tax if you are selling your old gold and purchasing your new jewellery with the same money. Therefore, you can save tax by buying new gold items in exchange for your old gold.

Taxation in Pre-GST Era

In the pre-GST era, in addition to the Customs Duty, one had to pay Value Added Tax (VAT) @ 1.2% and Excise Duty @ 1% while buying gold jewellery. Interestingly, there were no taxes on the making charges before the implementation of the GST. However, if you sell your old gold or exchange your old gold to purchase new gold jewellery, you had to pay a tax @3%.

How to Calculate GST on Gold?

To understand the GST calculation on gold jewellery, let's consider an example. Suppose the gold price is Rs. 40, 000 per ten gram or Rs. 4,000 per gram, and making charges are @ 10%. To understand the effect of GST, we list the pre-GST era taxes as well in a separate column.
  1. GST on Raw Gold: For purchasing 25 grams of gold, you will have to pay:

  2. S. No. Particulars Price (Before GST) Price (After GST)
    a. Price of 25 gm of gold Rs. 100,000 Rs. 100,000
    b. Customs Duty (@ 10%) Rs. 10,000 Rs. 10,000
    c. Service Tax on a + b above (@1%) Rs. 1,100 Nil
    d. GST on a + B above (@3%) Nil Rs. 3,300
    e. VAT on a + b + c above (@1.2%) Rs. 1,333.20 Nil
    f. Total Price for 25 gm gold (a + b + c) Rs. 1,12,433.20 Rs. 113,300


  3. GST on Gold Jewellery: However, if you want to buy a gold chain weighing 25 grams, you will have to pay:

  4. S. No. Particulars Price (Before GST) Price (After GST)
    a. Price of 25 gm of gold Rs. 100,000 Rs. 100,000
    b. Customs Duty (@ 10%) Rs. 10,000 Rs. 10,000
    c. Service Tax on a + b above (@1%) Rs. 1,100 Nil
    d. GST on a + B above (@3%) Nil Rs. 3,300
    e. VAT on a + b + c above (@1.2%) Rs. 1,333.20 Nil
    f. Making Charges on a + b above (@10%) Rs. 11,000 Rs. 11,000
    g. GST on Making Charges (@ 5%) Nil Rs. 550
    h. Total price of 25 gm Gold Chain Rs. 1,23,433.20 Rs. 1,24,850

Impact of GST on Gold

In the current tax regime, increased tax on gold and GST on making charges accounts to about 1 - 2 % increase in the cost of the end product. This marginal increase is in line with the government's policy to reduce the account deficit of the country. By introducing GST on gold, the government aims at introducing transparency in the organized sector and accountability in the unorganized sector.

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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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