How to Know GST on Gold?
In various forms, GST on gold can be discussed at length. GST has subsumed various taxes like VAT, service tax, excise duty and several other indirect taxes charged on domestic transactions. Taxes on the making charges on gold jewelry was introduced under the category of GST. On the other hand, essential customs duty continues to be collected on importing gold from other countries and the levy of IGST.
Comparing between gold prices before and under GST:
To set the context, the prices of pure gold, bullion or gold bars include the expenses of extraction and processing the gold and the profit margin, but it does not include making charges. However, the price of gold jewelry additionally involves making charges. Up to June 30th, 2017, taxes like VAT and service tax were involved in its price. Later GST replaced the previous tax system.
Let’s take an example of the import of gold jewelry and compare its prices under pre-GST and the GST regime as follows:
|Under GST (Not as a composite supply)
|Under GST (As a composite supply)
|Assumed base price of 10 gm. gold||90,000||90,000||90,000|
|Add: 10% Basic customs duty||9,000||9,000||9,000|
|Assessable value for service tax||99,000||99,000||99,000|
|Add: 1% Service tax||990||Nil||Nil|
|Assessable value for VAT||99,990||99,000||99,000|
|Add: 1% VAT||1000||Nil||Nil|
|Assessable value for GST||1,00,990||99,000||99,000|
|Add: 3% GST on gold||Nil||2,970||–|
|Total value of gold||1,00,990||1,01,970||99,000|
|Add: 10%^ making charges (On base price customs duty)||4,500||4,500||4,500|
|Assessable value for GST||1,05,490||1,06,470||1,03,500|
|Add: 5% GST on making charges||Nil||225||–|
|Add: 3%^^ GST on gold jewellery (For composite supply)||–||–||3,105|
|Total value of gold jewellery||1,05,490||1,06,695||1,06,605|
Some important points to be noted:
The customs duty rate was raised to 12.5% from the earlier rate of 10% vide Finance Act 2019.
Rate may vary with the state/UT assuming to be 1%.
Making charges vary between every jeweler. But, we are assuming the making charges to be 10% in this case.
If the supply of gold jewelry is considered a composite supply, then the GST rate chargeable on the gold jewelry, including making charges, is 3%. The supply of gold has been considered as the principal supply.
According to the above comparison between ‘before GST’ and ‘under GST, as a composite supply,’ we can see the price rise of 1,115 INR, an approximate increase of 1.01%. There can be a rise in price on pure gold or gold bars in accounts for the rise in tax rate from 2% to 3% under GST.
Further, GST is newly applied on the making charges, and it was seen that earlier, it was not present in the erstwhile indirect tax regime. These factors have been contributed for the rise in price.
In 2019, the Budget, which was introduced, also increased the customs duty on gold bars imported from outside India. The rate was 12.5% against the earlier rate of 10%.
GST on gold, GST on gold jewelry, and GST on gold coins:
As per the GST law, Gold bars fall within the definition of ‘Goods.’ Under the Section 7 of the CGST Act, the supply of gold (without any job work) can be considered as the supply of goods.
As per Sec. 8 of the CGST Act, gold ornaments or jewelry sales to the ordinary person can be a composite supply of goods and services. The gold used can be considered goods and making charges or value-added towards job work. Since the principal of supply is the sale of gold, the GST rate of 3% should be implemented instead of 5% on the total value of jewelry, whether or not making charges can be shown separately. The CBIC has been clarified this in its sectoral FAQs.
The GST registration threshold has limited that commonly apply for average taxpayers apply for businesses into gold mining and distribution. Further, the composition scheme under Sec. 10 of the CGST Act can be available for businesses dealing in gold sales.
Many gold merchants or sellers or jewelers take the services of various goldsmiths and specialists from different places who are carrying out their job work on the gold bars or gold biscuits supplied by them to make jewelry. It is also considered as the supply of service. The goldsmiths also charge for their service, which is known as making charges that will attract a GST of 5%. If these goldsmiths or specialists are not registering under GST, then the gold merchant or jeweler has to pay GST at 5% on a reverse charge basis.
Consumers who are approaching the goldsmiths by themselves would also have to pay 5% as GST if the goldsmith is registered under the GST act.
GST is not applicable if unregistered individuals sell gold jewelry or exchange gold ornaments to buy new jewelry shops. It is also not considered further business and is out of the scope of supply under GST. However, in case if the dealer or gold companies such as Aashraya Gold Company, Attica Gold company, or a company known as Manappuram Gold Loan, etc., purchase and sell second-hand gold jewelry. In that case, GST applies on the value of such gold calculated as per the rule 32(5) of the CGST Rules after satisfaction from the conditions.
Repair works on jewelry will be considered the making charges for which GST is charged separately at 5%.
What are the GST rates on gold jewelry?
|Particulars||HSN Code||GST rates|
|1. Precious stones other than diamonds and stones which are semi-precious, whether it is or not been worked or a graded but not a strung, mounted or a set
2. Ungraded precious like stones (other than a diamonds) and a semi-precious stones, a temporarily strung for a convenience of a transport (includes synthetic or a reconstructed stones, apart from unworked or simply sawn or roughly shaped)
|Diamond, a gold, a pearls, a silver, or a articles of jewellery of silver or a gold, and a so on, including synthetic or reconstructed stones, unworked or simply sawn or roughly shaped||7101, 7102, 7106, 7107, 7108, 7109, 7111, 7113, 7114, 7116, 7118||3%|
|Job work in relation to cut and polished diamonds, plain or studded jewellery of gold, silver and so on||9988||1.5%|
Are there any GST exemptions which are available for gold?
An exemption in GST was announced at the 31st GST Council meeting which was held on December 22nd 2018. Accordingly, GST was not charged for the supply of gold made by the notified agency to GST-registered gold jewelry exporters.
The move has minimized the GST burden on Indian exporters of gold jewelry and probably made by the Indian gold exports which are more competitive on the world market. However, domestic buyers of gold jewelry are not severely impacted.
Rule of e-Way billing of gold and its forms:
It has been stated in CGST Rule 138(14) that the transporting gold in any form, includes jewelry, goldsmith’s wares and articles under the Chapter 71 does not require an e-way bill. Hence, whether or not if the supplier or recipient of gold is registered under the act of GST is allowed to transport gold without making carrying an e-way bill important.
Availability of input tax which are credited in the gold business:
The jeweler or gold merchant can also claim that Input Tax Credit (ITC) can be paid on the raw materials which were used, i.e., gold and other job work charges which are incurred. Even when the gold merchant is paying a tax on a reverse charge basis for supply from an unregistered job worker, then he can claim the ITC on such tax.
One of the most popular Advance Rulings on gold under the act of GST:
- AAR of Karnataka in the case of M/s Attica Gold Pvt. Limited in order KAR/ADRG/15/2020 which is dated on March 23rd 2020
The applicant gold company can offer cash for gold and releases the pledged gold at the current market price which is registered under the act of GST. In case, if gold is purchased from unregistered individuals at second-hand price and if there is no change in the type or quality of the goods, then:
Valuation: The GST can be charged only on the difference between the selling price and the purchase price of the product, as it is provided in the Rule 32(5) of the CGST Rules.
ITC Claim: Can the company claim ITC if purchases are made from the dealer from whom the marginal scheme is applicable?
Valuation: Yes, if the company raises invoices as second-hand goods or deals in them without any change in form/type of the jewelry purchased, the valuation of the gold jewelry which is purchased from individuals who are unregistered will be as per the Rule of 32(5) of the CGST Rules. The valuation for GST can be the difference between the selling and the purchase price if it is considered as positive. However, if the purchase price is higher than the selling price, then no GST is implemented. Moreover, availment, which is not as the input tax can be credited which will be considered as an additional condition.
ITC Claim: In any case, if the purchase of second-hand gold jewelry is from a registered person, ITC is available. As discussed above, the margin scheme will not be available for the gold company on its further sale in such a case.
AAR of Maharashtra in the case of Biostadt India Limited in order GST-ARA- 72/2018-19/B- 165 Mumbai which is dated on December 20th, 2018
The applicant company is in the business of crop protecting chemicals and hybrid seeds. It also launched a sales incentive campaign named as Kharif Gold Scheme 2018. In simple words, in that scheme, it was offering a 10 gm and 8 gm gold coin to its customers for making a purchase above a certain quantity and for making minimum or less payments, respectively.
The issue is mentioned as follows:
ITC Claim: Whether the input tax credit has been availed on the procurement of gold coins for conducting sales promotions?
ITC Claiming for similar schemes: Whether there is an availability of ITC is for any other similar schemes
ITC Claim: No, ITC isn’t available for claiming the purchased gold coins. The distribution of gold coins wasn’t the principal business of the company which is a taxpayer in compliance with Sec. 16 of the CGST Act. Further, Sec. 17(5) on blocked ITC that are prevailing over Sec. 16 is disallowed ITC claims for disposal of any purchase of goods as a gift. The issuing of gold coins under the scheme have been also considered as a ‘gift.’
ITC claiming for similar schemes: No, ITC is not available for claims for any other similar schemes.
My Name is Nadeem Shaikh the founder of nadeemacademy.com. I am a Qualified Chartered Accountant, B. com and M.Com. having professional and specialize experience in field of Account, Finance, and Taxation. Total experience of 20 years in providing businesses solution in Taxation, Accounting, and Finance with all statutory compliance with timely business performance Financials reports. You can contact me on email@example.com or firstname.lastname@example.org.