GST on Diamond Jewellery: Impact of Rate Change & HSN Code

GST Rates on Diamonds

The typical GST rate on cut and polished diamonds is 1.5%, while rough or unpolished diamonds attract a GST rate of 0.25%. However, diamond jewellery is taxed higher at 3%, considering the additional making and job work charges involved.

GST on Diamond Jewellery

The GST rate on diamond jewellery is set at 3%, which applies to the total invoice value. This includes the cost of the diamond, any additional materials such as gold or platinum, and making charges.

When calculating GST, making charges are treated as part of the jewellery’s overall value. For instance, if the price of a diamond ring includes ₹1,00,000 for the diamond and gold and ₹10,000 as making charges, GST at 3% will be applied to the total ₹1,10,000.

For consumers, GST paid on diamond jewellery is non-refundable, as there are no provisions to claim GST benefits for personal purchases. However, registered businesses can utilise the input tax credit (ITC) on eligible purchases, helping to offset the GST paid during production or procurement.

GST on Imports and Exports of Diamonds

Imports

When importing diamonds, GST is applied at 0.25% for rough and polished diamonds and 3% for jewellery.  In addition to GST, custom duties are levied on diamond imports at 10%. Importers must account for both GST and customs duties when determining the total landed cost of diamonds.

Exports

Diamonds and diamond jewellery exported from India fall under the category of zero-rated supplies, meaning no GST is levied on export transactions. This policy encourages trade by reducing the tax burden on exporters.

Exporters can claim refunds on input taxes paid during procurement and production, provided proper documentation is submitted. To avail of these benefits, businesses must comply with export regulations and maintain accurate records of all transactions.

GST on Loose Diamonds

Loose diamonds, whether polished or unpolished, attract a GST rate of 0.25% as per the GST framework outlined in Chapter 71. This rate applies specifically to diamonds that are not mounted or set in any jewellery. For wholesale buyers and sellers, the GST rate remains the same at 0.25% for loose diamonds. The reduced GST rate offers significant advantages, particularly in bulk transactions. It helps minimise the tax burden during procurement and resale.

GST on Industrial Diamonds

Industrial diamonds are specialised diamonds used for industrial applications such as cutting, grinding, drilling, and polishing due to their exceptional hardness. These are not typically used for jewellery but are essential in manufacturing and heavy industries.

The GST rate for industrial diamonds is set at 0.25%, making them more affordable for businesses relying on such tools. This reduced GST rate aims to support industries by minimising the tax burden on essential raw materials.

The impact of GST on industrial diamonds is reflected in their pricing. Since the GST is minimal, it helps maintain cost-efficiency for manufacturers and other industrial users, ensuring these tools remain accessible without significantly increasing production expenses.

GST on Job Work in the Diamond Industry

Job work in the diamond industry refers to services like cutting, polishing, and assembling diamonds provided by workers hired by jewellers or businesses. These activities are essential for transforming raw or semi-processed diamonds into finished jewellery.

The GST rate on job work is 1.5% when registered job workers provide these services for manufacturing jewellery. However, if the services involve reworking or repairing old or exchanged diamond jewellery, they are categorised as labour work and attract a higher GST rate of 18%.

Businesses can claim ITC on the GST paid for services availed from job workers, including those who are unregistered, under the reverse charge mechanism. This provision ensures that GST paid for such services does not become an additional cost, supporting seamless compliance and cost-efficiency in the supply chain.

GST on Rough Diamonds

The GST rate on rough diamonds is 0.25%, making it one of the lowest rates in the diamond supply chain. This rate applies to unprocessed or raw diamonds that have yet to undergo cutting, polishing, or other modifications.

Special provisions exist for diamond miners and importers to ensure the smooth flow of trade. Miners are allowed to sell rough diamonds under the 0.25% GST bracket, simplifying tax compliance for primary producers. Similarly, importers benefit from the same low GST rate on imported rough diamonds, reducing the cost burden and encouraging international trade.

GST on Polished Diamonds

Polished diamonds refer to diamonds that have been cut, shaped, and refined to enhance their clarity and brilliance. These diamonds attract a GST rate of 1.5%, as specified under the GST framework.

In the retail sector, the GST is added to the final price of polished diamonds, influencing consumer costs. Retailers must factor in this tax while setting their pricing strategies, ensuring compliance, and maintaining competitiveness.

In the wholesale sector, GST plays a critical role in pricing. Wholesalers can claim input tax credits on the GST paid during procurement, which helps offset their tax liabilities. This benefit enables wholesalers to price polished diamonds more competitively, fostering smooth transactions in the supply chain.

Impact of GST on Diamond Jewellery

The introduction of GST has brought both challenges and benefits to the diamond jewellery industry. GST has streamlined the tax structure for manufacturers and retailers by replacing multiple indirect taxes with a single system. However, it has also increased compliance requirements, particularly for small and medium enterprises (SMEs). Exporters have benefited from the zero-rated export policy under GST, which allows them to claim refunds on input taxes.

For consumers, the price of diamond jewellery has actually come down under the GST regime despite the 3% GST on diamond jewellery, due to the removal of the cascading effect of taxes. Prior to GST, multiple taxes were levied at different stages, which led to higher final prices. Now, with a single tax structure in place, the overall cost has been reduced.

GST Rate & HSN Code for Diamonds

The Harmonised System of Nomenclature (HSN) code simplifies GST filing by categorising goods based on their nature and use. Diamonds fall under HSN code 7102, which covers rough and polished diamonds.

GST Rates and HSN Codes for Diamonds

How to Calculate GST on Diamond Jewellery?

1. Identify the Total Value: Determine the total value of the diamond jewellery, including the cost of the diamonds, metals, and other materials.

2. Calculate Making Charges: Add making charges to the total value. These are the charges for crafting the jewellery.

3. Determine GST Rate: Apply the GST rate applicable to diamond jewellery. Generally, the GST rate is 3% for diamond jewellery, but this can vary.

4. Apply GST: Calculate the GST by multiplying the total value (including making charges) by the GST rate.

5. Add GST to Total: Add the GST amount to the original price to get the final price.

6. Consider Special Scenarios: Different GST rates may apply in cases such as old jewellery exchanges, mixed supply sales, or job work.

Here are the factors that can affect the diamond GST rates:

Case 1: Composite Supply

In the case of a composite supply, the principal supply (diamond jewellery) dictates the GST rate applied to the entire product. Even if other services (like making charges) are included, the GST rate on the principal supply will apply to the full value.

For example:

Suppose a diamond necklace is priced at ₹5,00,000, with additional making charges of ₹50,000. Since the principal supply is diamond jewellery, which attracts a 3% GST, the entire amount of ₹5,50,000 (sum of the jewellery and making charges) will be taxed at the 3% rate.

GST amount = ₹5,50,000 × 3% = ₹16,500

Case 2: Mixed Supply

A mixed supply involves multiple items, each with its own GST rate. In this scenario, the highest GST rate applicable to any of the included items is applied to the entire bundle.

For example:

Imagine a jeweller bundles diamond jewellery worth ₹1,00,000 with a high-end watch, where the watch attracts an 18% GST rate. Since the package includes items with different GST rates, the sale will be taxed at the highest rate of 18%.

GST amount = ₹1,00,000 × 18% = ₹18,000

Case 3: Making Charges

When making charges are involved in the sale of diamond jewellery, GST is applied to the total value, which includes both the cost of the jewellery and the making charges.

For example:

If a diamond bracelet is priced at ₹3,00,000, and the making charges amount to ₹20,000, the GST will be calculated on the combined value of ₹3,20,000 (₹3,00,000 + ₹20,000). Since the jewellery attracts 3% GST, the total GST amount will be:
GST amount = ₹3,20,000 × 3% = ₹9,600

Case 4: Exemption on Old/Used Diamond Jewellery

There is no GST levied on the purchase of old diamond jewellery. This transaction is considered a sale that does not further the business. However, if a jeweller buys used jewellery from a registered seller and resells it, GST is applicable on the sales price.

For example:

If a jeweller purchases old diamond jewellery and resells it, they will have to pay GST on the total sales amount. The jeweller can also claim ITC for the GST paid on the purchase of second-hand jewellery.

Case 5: Purchasing New Jewellery vs. Old Diamond Jewellery

When a customer exchanges old diamond jewellery, GST is only applied to the new jewellery. The value of the old jewellery is not considered for GST purposes. However, the customer will still pay GST on the full value of the new jewellery.

For example:

Suppose a customer exchanges ₹1,00,000 worth of old diamond jewellery for new jewellery worth ₹2,00,000. GST will be calculated only on the price of the new jewellery (₹2,00,000) at 3%: GST amount = ₹2,00,000 × 3% = ₹6,000

Case 6: Job Work for Diamond Jewellery

In the diamond jewellery industry, job work refers to the services provided by third parties for manufacturing or processing jewellery, such as cutting and polishing diamonds. The GST rate for job work services is typically 1.5%. However, if the job work involves reworking or repairing old or exchanged jewellery, the GST rate increases to 18%.

For example:

If a job worker performs cutting and polishing on diamonds, they will charge 1.5% GST on their services. But if the job worker is repairing or reworking old jewellery, the 18% GST will apply.

Place of Supply for Diamond Jewellery

The place of supply is a crucial concept under GST, as it determines whether a transaction is treated as interstate or intrastate, directly impacting the GST liability on diamond jewellery.

As per Section 10 of the IGST Act, 2017, the place of supply for diamond jewellery is the location where the movement of the jewellery concludes for delivery to the recipient. For example:

• If a buyer purchases jewellery at a showroom and takes delivery at the same location, it qualifies as an intrastate supply, attracting CGST and SGST.

• In contrast, when diamond jewellery is transported to another state, it qualifies as an interstate supply, attracting IGST.

The location of the buyer or seller does not solely determine GST applicability. Instead, the place where the goods are finally delivered or services are completed plays a crucial role in deciding whether CGST, SGST or IGST applies.

Time of Supply for Diamond Jewellery

The time of supply under GST determines when the tax liability arises for a transaction. For diamond jewellery, the time of supply dictates when GST becomes applicable, helping businesses ensure compliance and timely payment of taxes.

As per GST rules, the time of supply for diamond jewellery is triggered by the earlier of the following events:

• The date of receipt of final payment from the buyer.

• The date when the jewellery is supplied to the buyer.

For instance, if a buyer makes a full payment before the jewellery is delivered, GST becomes payable on the date of payment. Conversely, if the jewellery is supplied before the payment is made, GST is due on the supply date.

E-way Bills for Diamonds

Currently, e-way bills are not required for transporting diamond jewellery and other specified articles, as outlined in Rule 138(14) of the CGST Rules, 2017. This means that, under normal circumstances, jewellery can be transported without the need for an e-way bill.

However, there have been recent updates following the 47th GST Council meeting. The National Informatics Centre (NIC) has introduced an update to the e-way bill generation portal. Now, e-way bills will be required for the transport of precious stones, including gold jewellery and items falling under HSN 71. This includes diamonds, which will now require an e-way bill if transported under these conditions.

Process of Generating E-way Bills for Diamond Jewellery

1. Log in to the portal with your GSTIN credentials.

2. Select the option to generate e-way bill.

3. Provide the necessary details of the transaction, including the transaction type, document type, number, and date, from/ to, transporter details, etc.

4. After entering all required information, submit the details. A unique e-way bill number (EBN) will be generated.

ITC Availability on Diamond

Jewellers can claim Input Tax Credit on GST paid for purchases made for business purposes except for those specifically disallowed under Section 17(5) of the CGST Act. Businesses in the diamond industry, including manufacturers, traders, and exporters, are eligible to claim ITC if the supplier has deposited the GST on inputs and the goods or services are used in the production or sale of diamond jewellery.

Eligible expenses include:

• GST paid on raw materials like uncut or polished diamonds.

• GST paid capital goods like machinery for cutting or polishing diamonds.

• GST paid for services related to diamond transactions such as design and packaging.

Advance Rulings on GST for Diamonds

Advance rulings related to GST on diamonds help businesses understand the applicable tax laws and the classification of their products. Businesses can significantly benefit from advance rulings as they provide clarity on complex tax issues, allowing for more informed decision-making.

For example, in the diamond jewellery sector, a ruling on whether a particular process or transaction is taxable helps businesses manage compliance more effectively, avoid penalties, and plan for taxes better.

Key Rulings:

1. Advance Ruling: KAR ADRG 35 / 2021 (9th July 2021)

• Facts: M/s Aadhya Gold Private Limited, which deals in second-hand jewellery, cleanses and polishes it without claiming ITC.

• Ruling: The Karnataka AAR stated that GST should only be paid on the difference between the buying and selling price of second-hand jewellery under Rule 32(5) of CGST Rules, 2017.

2. Advance Ruling: KAR ADRG 16 / 2018 (27th July 2018)

• Facts: M/s Rajarathnam’s Jewels asked whether depositing diamonds in a safe vault (via Electronic Vault Receipts) would be considered a taxable supply.

• Ruling: The AAR ruled that merely depositing diamonds in a vault for conversion into Electronic Vault Receipts (EVR) does not constitute a supply under GST.

Frequently Asked Questions (FAQs)

1. Why was the GST on diamond jewellery increased?

The GST on cut and polished diamonds was increased from 0.25% to 1.5% to address the issue of input tax credit accumulation in the diamond jewellery sector. This change helps resolve the inverted duty structure and stimulates industry growth.

2. How does the GST rate increase affect the diamond jewellery industry?

The increase in GST rate raises production costs for manufacturers, leading to higher prices for consumers. It also helps address the issue of input tax credit accumulation, improving cash flow for businesses. However, the higher tax rate may affect the profitability and competitiveness of Indian diamond jewellery in international markets.

3. Are all types of diamonds subject to the new GST rate?

No, not all types of diamonds are subject to the new GST rate. The 1.5% GST rate applies specifically to cut and polished diamonds. Rough or uncut diamonds are still taxed at 0.25%, while diamond jewellery is taxed at 3%.

4. What is the GST number of diamonds?

There is no GST number for diamonds, though diamonds fall under the HSN code 7102 for GST purposes.