What is GST
GST is a comprehensive tax that subsumes the prevalent indirect tax regime of the country. It is a multistage tax that is imposed at every step in the process of production and is collected from the point of consumption. It was introduced to avoid cascading effect of taxes. It is a single indirect tax imposed on the supply of products and services within the country. If you get GST Registration Online, you can avail of several benefits in the Indian Taxation system.
A GST charge of 3% is levied on gold value and a charge of 5% is levied on converting them into ornaments separately. A total of 8% GST is charged on the gold ornaments. According to Economic Times, the organized jewelry segment accounts for 22% of the market and the local and independent stores capture the remaining 78 %. It has a 7% share in the GDP of the country.
Effect of GST on jewelry business can be understood through the below-mentioned points –
- The supply of gold bricks (without any job work) is covered under section 7 of the CGST act and is considered as ‘supply of goods.
- The gold used in making ornaments falls under the category of ‘goods’.
- The making charges or value addition falls under the category of ‘job work’
- The gold merchant or consumers approaching the goldsmith for job work have to pay a GST of 5% (if registered under GST).
- No GST is charged if unregistered individuals sell or exchange gold ornaments at jewelry shops.
- Under rule 32(5) of the GST rules, the dealers or gold companies have to pay GST on the purchase and sale of gold jewelry.
- Repair work of jewelry attracts a separate GST of 5%.
How is GST calculated on Gold jewelry?
A customs duty of 10 % is levied on the vendors if they import gold in India. 3% GST is levied on the value of gold. Further an additional 5% GST is imposed on the vendor if he uses gold to make jewelry or other ornaments. According to the GST consultants, the final value of jewelry is calculated on the formula-
Value of gold+ Custom duty+ Making charges + GST on making Charges
GST exemptions on gold jewelry
The 31st GST council meeting on 22 Dec 2018 announced that GST will not be charged if any notified agency supplies gold to GST registered gold jewelry exporters.
This move has proved helpful in making Indian gold exports more competitive in the global market. The domestic buyers of gold jewelry are not impacted as they are out of the purview of GST.
Impact of GST on gold value and gold imports
GST charges have resulted in a drastic rise in gold prices for the final consumer. However, the GST tax slab for gold value is 3%but it has a deep impact on the price due to its prevalent market rate. As a result, the end consumer has to pay more in comparison to the previous tax regime.
With the implementation of GST, the gold imports now bear a custom duty of 10% in addition to 3% GST. This results in high gold prices due to which there has been a rise in illegal gold smuggling, especially from the middle east.
Claim GST on gold jewelry
You can claim GST on the making charges if you are a jeweler or gold merchant. You get the facility to claim Input Tax Credit (ITC) up to 2% on the making charges and other job work charges incurred on it. As a gold merchant, you have to pay tax for supplies from unregistered job workers and you can claim ITC on it.
Tax paid on Gold
8% GST is imposed on the purchase of gold. The investments in gold attract a tax on the basis of the time period of investment in gold coins/ jewelry. The returns generated as Short term capital Gains attract taxes according to the income tax slab rate. In addition to this, a further 20% tax along with a surcharge is levied on long-term capital gains on gold.
With GST in place, the jewelry sector in India has successfully attained competitive pricing and has discarded the non-tax compliant units in the long run. The process and provisions of the Income Tax credit have made the process error-free and transparent. The jewelry sector may surely see a boost if it gets rid of the confusion that binds the pace of its growth.