Here Is How GST Has Made Gold Costlier For You
Jul 12, 2017

Author: PersonalFN Content & Research Team

The revolutionary Goods and Services Tax (GST) is probably affecting every area of your life.. Be it, daily necessity or a luxury. And if you are looking to buy gold in the near future, you might have to shell out little more money.

Here’s why…

After much debate, GST on gold is set at the rate of 3% as against to 2.2% (1% excise duty and 1.2% VAT) charged earlier. Additionally, the existing 10% import duty on gold remains the same. Plus, the service tax on jewelry making charges will be levied at 5%. But on the bright side, implementation of GST will have a positive impact on the gold industry.

According to the World Gold Council, “GST will bring greater transparency to the supply chain, and bring more of the gold market into the formal sector”. This in turn will eliminate the inefficiencies and boost the overall growth of the economy. Further, the WGC in its report released on June 09, 2017 added that, "They can have more faith in the gold products they are buying, and this in turn can support gold demand in the years to come,"

But if you are about to buy gold jewelry in the next few months you will have to technically shell out more as compared to having bought it on or before June 30, 2017.

Impact on gold jewelry making charges

Prior to GST, no service tax was levied on making charges of jewelry. However, under GST a 5% tax will be levied. Around 10% - 12% of the gold value is calculated as making charge/s for any style of jewelry.

Particulars Pre - GST Post - GST
a Price of gold (50 gm, in Rs) 140,530 140,530
b 1% Excise Duty 1,405 0
c a + b 141,935 140,530
d 1.2% VAT 1,703 0
e c + d 143,639 140,530
f 3% GST on Gold 0 4,216
g e + f 143,639 144,746
h Making Charges (12% on gold cost) 16,864 16,864
i 5% GST on Making Charges 0 843
j h + i 16,864 17,707
k Total Price of Jewelry 160,502 162,453
(This table is illustrative)

So, overall you will have to pay around Rs 2,000 – 3,000 more on purchase of gold jewelry weighing around 50 gms, at current gold prices.

Impact on recycling of old gold jewelry

Selling old gold to the jewelers is a taxable transaction now. So, when buying new jewelry, you have to pay 3% GST; but if you opt to exchange old jewelry for a new one, the jeweler at the time of purchase has to pay a reverse charge of 3% to the government. For instance, if you wish to sell a 10-gram gold chain to the jeweler, the jeweler will first deduct 3% GST. He will deposit this amount to the government. And if you were to buy a new gold chain, again 3% GST will be applicable on the purchase of new gold. So, it’s a double whammy for customers.

But in the case of gold bars or coins, you will have to pay only the making charge.

Gold jewelry manufactured by Karigars

GST is a destination based tax on all the goods and services rendered. Hence, it will be beneficial for jewelers with an in-house production base. For the jewelers who place orders to a third party, commonly a karigar/artisan will have to bear this tax.

Firstly, all the artisans/manufacturers/dealers with a turnover above Rs 20 lakh have to register themselves under GST. If the manufacturer is registered under GST, they will recover GST on the making charges from the jeweler. But if he is not registered, then jewelers will have to pay tax on making charges paid to the karigar.

Nevertheless, the increased cost will eventually trickle down to the end customer resulting in dearer jewelry.

As nearly 85% of the market is still unorganized, this practice will help in streamlining the whole supply chain and will clear up bottle necks.

Illegal smuggling

A hike in taxes might compel many into buying gold illegally. Though India is second largest consumer of gold, most of its gold demand is met by unaccounted import. According to World Gold Council estimates the smuggling networks imported up to 120 tonnes of gold into India in 2016. Hence to curb smuggling government has been trying to levy heavy taxes.

Government has been continuously making efforts to curb this smuggling. As gold is largely purchased in India with an emotional connect, many would prefer to buy gold even without a receipt/ bill and avoid paying 3% tax.

Unconventional avenues for investing in gold

If you are a hardcore believer of investing in physical gold, the only advantage it can offer you is “touch, feel, and see” along with the choice of converting the gold coins and bars you’ve collected; into jewelry at some point in time. However, this passion of investing in gold in the physical form has some disadvantages such as holding cost, threat of theft, resale value, quality of gold, etc.

Hence, here, we have tried to evaluate the Gold ETF as an option for gold investing, in order for you to be prudent while investing in gold.

What is a Gold ETF?

Before understanding Gold ETFs, let’s first understand what is meant by Exchange Traded Funds (ETFs).

ETFs are schemes offered by mutual fund houses that are listed and traded on a stock exchange. They represent ownership in an underlying security, commodity, or asset. It simply means, a Gold ETF is an instrument that represents an ownership of gold assets. This gold is held on your behalf by an appointed custodian for the ETF.

Gold ETF’s are open-ended funds, which track prices of gold. Each unit of gold in the fund that you can buy, is equal to 1 gram of gold (some fund houses also offer 1 unit at 0.5 gram of old). When you buy a Gold ETF, you get a contract indicating your ownership in gold equivalent to the rupee amount of your investment. Notably, you will not get to see or receive delivery of the gold you own – you will only have a contract that represents your ownership interest.

Gold ETFs are listed and traded on a stock exchange and hence, can be bought and sold like stocks on a real-time basis. But to own them, you need to open a demat account along with a share trading account with your broker. While transacting in Gold ETFs, you would be required to simply call your broker and place your orders (at the prevailing market price), or do the same with the online trading application provided by him (broker).

We believe that investing in Gold ETFs is a smart way to invest in gold, for the advantages offered by it. For gold bugs, investing in Gold Exchange Traded Funds today is a very simple and a lucrative exercise, especially now with the rise in price due to GST.

Also read the below articles:

4 Reasons For Rise In Gold Demand

Are You Selling Gold To Invest In Equity? Think Again

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