The Goods and Services Act (GST) came into force on July 1, 2017, which influenced the prices of several commodities. It impacted many sectors, including hospitality, textiles, FMCG, E-commerce, Agriculture, Automobiles, and many more. To make better investment decisions, it is important to understand the final effect of GST on different sectors.
When it comes to gold, different GST rates were applicable at different stages, such as the manufacture of gold, supply of gold, etc. Gold has retained its popular position in India of being the go-to investment option to date. This is why an understanding of the final impact of GST on gold and gold jewelry prices is a crucial subject.
Let’s learn in detail about it below.
What is GST on Gold?
As per a recent report from Bloomberg, gold imports touched a two-year high in March 2021. This explains that there is a surge in demand for gold as the economy revives slowly. However, investing in gold and gold commodities attracts certain taxes which need to be kept in mind.
Whenever an individual purchases gold jewelry, they have to bear a flat rate of 3% GST. Additionally, he also has to pay GST at 5% on the making charges. It is important to note that the import, purchase, and making charges of gold have different GST rates individually.
However, there is no GST attracted if you sell old gold jewelry and purchase new jewelry in a single transaction. This means that individuals can save on GST tax by simply exchanging old gold items with new gold.
Impact of GST on Gold
The basic premise behind GST was to absorb the different indirect taxes and bring forth a unified tax system, thereby reducing the multitude of compliances every business had to adhere to. Consequently, by implementing GST on gold, the businesses dealing in gold had to follow the revised guidelines.
The overall impact of GST on gold can be reflected in its final price, which became expensive by at least 0.75%.
Here is a pre-GST and post-GST example of gold calculation for a better understanding of the differences in prices:
As can be seen in the above example, excise duty and VAT of 1% each were attracted to gold initially. Once GST was implemented, all the other taxes were eliminated, and only a GST of 3% was brought into effect.
All of this has resulted in a considerable price increase in gold. It is to be noted that the making charges vary from jeweler to jeweler. Also, there is no single standard pattern of invoices followed in the sector. This results in different billing systems.
However, the basic formula for the calculating price of gold jewelry followed by jewelers is:
Price of gold X weight in grams + Making charges + 3% GST(the price of gold plus making charges)
Gold, GST, and Unorganized Sector
Since only 30% of the gold market is organized in India, GST was welcomed as a major player in the organized market. It was seen as a solid way to bring transparency in the trading of gold. The disorganized gold sector was looking for concrete reforms, and the implementation of GST provided a much better legal structure to the way gold was being purchased.
It is to be noted here that even though there appears to be a significant increase in gold prices, GST also allows Input Tax Credit (ITC). This helped players in the gold market to avail credit against the taxes paid on their outward supplies, which eventually reduced their liability and encouraged many unorganized players to shift to the organized market.
This move will help such unorganized players attract credit at low rates and give them more authenticity to attract credible customers. GST implementation cleared more ways for small gold players to move the organized value chain.
Things to Consider Before Buying Gold
- Since the price of gold keeps frequently fluctuating due to different factors like import duty, demand, supply, currency fluctuations, etc., the final transaction amount also impacts GST on gold.
- The precious and semi-precious stones attract different GST norms, and hence the purchase bill should feature both of them separately.
- Always purchase gold jewelry that is hallmarked which gives more concrete proof of its purity.
- Different qualities of gold come at different prices. This is why the GST amount also differs depending upon the gold quality. Even though 24 karat is the best quality of gold available, most jewelers use 22 karats, 18 karats, and 14 karats of gold quality for crafting gold jewelry.
Gold is one such commodity that attracts varying taxation treatment during its entire product lifecycle. It is in the best interests of the buyer to be completely informed to make a sound decision.