3% GST on gold: The yellow metal will continue to shine; jewellers rejoice

The industry, however, needs clarity on standardised billing procedure for selling gold jewellery

Jewellers across the country are happy with the three per cent rate fixed on gold jewellery under the Goods and Services Tax (GST). The Centre has definitely considered the demand of the gold industry while fixing the rates.

Currently, gold jewellers pay one per cent excise and 1.2 per cent value-added tax (VAT) over and above the 10 per cent customs duty on bullion. This effectively works out to 12.43 per cent. With the introduction of GST at three per cent for gold and 18 per cent for making charges, and keeping customs at 10 per cent, the effective rate comes to 15.67 per cent. So, the effective price escalation on gold jewellery comes to 3.24 percentage points. This is still a win-win for gold jewellers; they would not have expected anything better than this, particularly after the chief economic advisor's report of Rs 10,800-crore subsidy on gold.
 
Besides, since the government will recover an additional Rs 6,000 crore from this industry, subsidy on gold would come down, considering an annual consumption of 700 tonnes.

At present, there is no service tax on making charge of jewellery. The GST council has not announced a similar GST rate of three per cent on making charges of jewellery. So, GST rate on making charges of jewellery falls within the 18 per cent tax bracket. Assuming a customer typically pays 12 per cent of the gold value as making charges, gold jewellery could become costlier.

DECODED: PRICE OF GOLD JEWELLERY UNDER GST

 

GOLD JEWELLERY: NOW vs THEN

Explained: How the price of gold jewellery will change after the introduction of GST (assuming gold price remains unchanged)

		Now	After GST rollout
A.	Price of gold (100 gm 995, in Rs)	263636	263636
B.	Customs duty (10%)	26364	26364
C.	A+B	290000	290000
D.	Excise (1%)	2900	0
E.	C+D	292900	290000
F.	VAT (1.2%)	3515	0
G.	E+F	296415	290000
H.	GST (3%)	0	8700
I.	G+H	296415	298700
J.	Making charges (12% of gold price + customs)	34800	34800
K.	I+J	331215	333500
L.	GST on making charges (18%)	0	6264
Total price of jewellery (K+L)

331215 339764

Total taxes and duties (B+D+F+H+L)

32779 41328

Taxes and duties as & of gold value

12.43 15.68        

Effective increase in gold jewellery prices
after GST implementation 

3.24 percentage points
The industry also needs clarity on standardised billing procedures in the country for selling gold jewellery, as some jewellers show making charges separately, while others include them in the price of gold. The international norms say that making charges, wastages, and stones, among other things, must be shown separately in the sales invoice at the time of selling gold jewellery. It is important to understand that most jewellers do not have their own manufacturing unit, so they would be paying 18 per cent GST to workers making jewellery and collecting only three per cent from the customer. Thus, a jeweller needs to factor in the differential tax on making charge in the price of jewellery.

However, the industry has welcomed the government's decision, hoping this will not affect their business. However, this also means that there is no customs duty cut likely in the near future. Probably, the government does not want to look at customs duty on gold as of now, given the price structuring of the sovereign gold bond, which includes 10 per cent duty but excludes VAT.

With some states demanding rates as high as five per cent for gold under GST, the industry could not have expected anything better than this. Under the current three per cent rate, gold will keep glittering. The India Bullion and Jewellers Association has always demanded that the entire duty and current tax structure remain untouched under the GST regime, and this has been fully accepted by the government. The author is the national secretary of the India Bullion And Jewellers Association Ltd