GST Council has fixed the tax rate of gold at 3 per cent. GST Council on June 3 created a new tax bracket for gold, diamonds and silver. In many states, the current excise duty on gold was 1 per cent and 1 per cent VAT. With 3 per cent GST on gold, it is said to become more expensive July onwards.
So, the effective price rise on gold jewellery online shopping comes to 3.24%. It is clear that gold is going to get slightly expensive for consumers in India. At present, jewellers pay 10% customs duty on gold and pay 1% excise plus 1.2% VAT over and above that. This effectively works out to 12.43% when buying jewellery and 11.32% when buying bars as bars do not attract excise duty.
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 coins 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 tons.
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; to buy gold bars online & offline could become costlier.
The effective rate comes to 15.67% when you include 10% customs duty, with the introduction of GST at 3% for gold and 18% for making charges. The export business will also be debilitated. It depends on raw material (gold) being supplied by international buyers and the Indian party makes the jewellery and exports i.e. value addition in the form of design and labor.
GST taxation is also because the government wants to discourage gold buying. Under GST rule, the international customer to buy gold coinswill have to list as a non-resident business person and take on the necessary paperwork. This will discourage many customers.
There will be troubles for the industry at first, to abide by the new set of rules but large organized and branded retailers will be at a plus. We believe that GST is a step in the right direction and over a period, both the industry and consumers will stand to benefit with increased transparency.