Before the GST was implemented in India, a potential buyer of gold/gold jewellery had to pay 1.2% VAT along with 1% excise duty and 10% customs duty for the procurement of gold. The GST council has decided a rate of 3% of GST on gold, thus, Value Added Tax (VAT) and Excise Duty have been replaced by 3% of GST. Though, the physical demand for gold products has been lower because of the levy of 3% of GST and 10% of customs duty respectively. In brief, with the implementation of GST, gold has become expensive by about 0.75%. In this article, we will discuss the effect of GST on gold jewellery and its making charges.
For an example, if you want to buy 100 grams of gold at a rate of Rupees 30000/ 10grams, the total price would be Rupees 3,00,000 plus Rupees 30,000 (10% duty of customs), Rupees 3,300) and Rupees 4,000 (1.2% of VAT) which comes out to be Rupees 3,37,300. On the contrary, the value of 100 grams of gold under GST comes out to be Rupees 3,00,000 plus Rupees 30,000 (10% of customs) and Rupees 9,900 (3% of GST) resulting in a net value of Rupees 3,39,900.
It is important to be noted that in the Pre-GST regime there was no service tax levied on the making charges of the Jewellery. However, under the GST regime, initially, the GST council decided a rate of 18% on the Jewellery making which was slashed to 5% subsequently at the time of introduction of GST.
The effect of GST on gold jewellery through a table presentation
|Before GST||After GST|
|A.||Gold Price (100 gm 995)||Rs. 2,65,500||Rs. 2,65,500|
|B.||Customs duty at 10%||Rs. 26,550||Rs. 26,550|
|C.||A+B||Rs. 2,92,050||Rs. 2,92,050|
|D.||Excise Duty at 1%||Rs. 2,921||0|
|E.||C+D||Rs. 2,94,971||Rs. 2,92,050|
|F.||VAT at 1.2%||Rs. 3,540||0|
|G.||E+F||Rs. 2,98,502||Rs. 2,92,050|
|H.||GST at 3%||0||Rs. 8,762|
|I.||G+H||Rs. 2,98,502||Rs. 3,00,812|
|J.||Making charges at 12% of 2,92,050||Rs. 35,046||Rs. 35,046|
|K.||I+J||Rs. 3,33,548||Rs. 3,35,858|
|L.||GST on Making Charges at 5%||0||Rs. 1,752|
|Total Price of Jewellery (K+L)||Rs. 3,33,548||Rs. 3,37,610|
|Total taxes and duties (B+D+F+H+L)||Rs. 33,011||Rs. 37,064|
Under the GST regime, the retailers can avail the credit of input tax on the gold product or service being sold. GST is considered to be beneficial for the yellow metal industry, as this facility will bring a shift from the unorganised sector to the organised sector. In addition to this, the independent and stand-alone small retailers would certainly try to increase their profitability under the GST regime. Several jewellers outsource the work of jewellery making, which would result in 5% of GST on the service. This would certainly want them to start in-house production. Further, GST will reduce the cost of manufacturing and improve the earnings.