How does GST affect the gold prices?

Investment

Implication of GST on gold in India

As the clock struck 12 on the night of 1st July 2017, the Government ushered in a new era of indirect taxation in the country. By now, almost everyone in the country has heard of GST: The Goods and Services Tax.

Now, whenever you receive a bill for a purchase you have made, be it a product in a jewellery store, a super market, or a service at a restaurant or theatre, you will not see Value Added Tax (VAT) or Service Tax. Instead, you will only find GST. This may be further split into CGST (Central Goods and Service Tax) and SGST (State Goods and Service Tax).

In the follow-up to the implementation of GST, the GST Council fixed the tax rates for gold, along with almost 1,211 other goods and services.

BUYING GOLD

A 3% GST is liable on gold from 1St July 2017 onwards. However, the customs duty will continue to be 10%.

Also, GST of 5% will be charged on the making charges of gold. To know exactly how this impacts the price of gold, read Simplifying gold purchase: making and wastage charges.

With GST, consumers now face effective tax rates of about 13.5%-14% (including the customs duty, GST on the making charges and gold jewellery), which was earlier 12.4% . Here is an illustration:
 

Particulars Before GST After GST
A Price of gold metal (₹per gram) * 3,000.00 3,000.00
B Custom Duty (10%) 300.00 300.00
C Cost of importing the metal (A+B) 3,300.00 3,300.00
D Making charges (@8% on the cost of importing gold) 264.00 264.00
E Jeweller’s manufacturing cost (C+D) 3,564.00 3,564.00
F  Excise duty on jewellery fabrication (@1% on manufacturing cost ‘E’) 35.64 (not relevant)
G Retailer’s cost of jewellery (E+F) 3,599.64 3,564.00
H VAT (@1% to 5% on retailer’s cost of jewellery ‘G”) 35.99 (not relevant)
I GST on jewellery (@3% on cost of importing the metal – ‘G’ (not relevant) 106.92
J Total Price of Jewellery (one-gram gold) (G+H+I) 3,635.63 3,670.92.12
K Total Taxes and Duties (B+F+H+I) 371.63 406.92 
  Taxes and Duties as a percentage of jewellery price 10.22% 11.08%
  Impact on price ▲1.33%  
  Impact on price ▲1.33%
 

This may appear to be a greater tax burden, but GST offers broader tax efficiencies that would benefit you in the long run.

Under the GST regime, jewellers will be able to use input tax credit from any goods and services used in the process of selling jewellery. Any tax efficiencies that are gained in the supply chain will now be passed on to the consumers.

This move benefits the jewellers in the organised sector and directs customers to their side. This may also bridge the gap between the organised and the unorganised jewellery sector.

The implementation of GST is a disruptive change in the short-term due to slightly higher taxes for customers, but this is considered by most as a period of adjustment for the industry while consumers and retailers get a grip of the nitty gritty of the new tax regime.

SELLING YOUR OLD GOLD JEWELLERY

If you sell your old jewellery to a jeweller, the jeweller is not liable to pay any GST under the reverse tax mechanism. However, if an unregistered supplier of gold ornaments sells it to a registered supplier, the tax will apply under reverse charge mechanism. Under this mechanism, the liability of paying tax is on the receiver of goods or services and not on the supplier.

Related: Things to know before you sell your gold jewellery

More confidence for buyers

Greater transparency in retail outlets will increase the confidence of gold buyers across the country. GST will help bring more gold into the formal sector. This is bound to have a long-term positive impact on the industry.

Consumers can have more faith in the gold products they are buying and this, in turn, can support indian gold demand in the years to come.

The benefit will come back to you eventually as more of the gold market will come into the formal sector. By supporting GST’s idea of making it difficult for grey- and black-market sellers to operate, you too can contribute to ensuring legal means of gold transactions .

Sources:

Source1,Source2, Source3,Source4,Source5,Source6

Gold Glossary

Slabbed coins

These are coins encapsulated in plastic to ensure that they are protected against any natural wear and tear. In normal course, slabbed coins are graded by one of the two major grading services.

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