Home to more than 3 lakh players, [1] the Indian gems and jewellery market is expected to be worth USD 100 billion by 2025[2]. At the same time, India is one of the biggest importers of gold, with the yellow metal seen as an important asset class to hedge against inflation. In fact, it forms an integral part of the portfolio of most retail investors.
Just like other items, Goods and Services Tax (GST) is applicable on gold, gems and jewellery and in this article, we will discuss the applicable GST on these items and its impact on the industry.
GST rate on gold, gems and jewellery
Prior to GST, gold, gems and jewellery attracted a service tax of 1%, while VAT ranged from 1 to 1.2%. So, the overall tax ranged on these precious items ranged from 2 to 2.2%. However, today GST rate on gold, gems and jewellery is fixed at 3% which makes these items expensive for customers. So, now the final price of gold jewellery is calculated based on the following formula:
Final price = Price of the gold (22KT or 18KT) X Weight in grams + Making charges + 3%GST
The increase in price, following GST, has affected demand for gold to some extent. As per reports of the World Gold Council (WGC), India’s demand for gold dipped to 737.5 tonnes in 2017 from a 10-year average of 845 tonnes [3].
Cost gap between organised and unorganised players to come down
While GST has increased prices of gold, gems and jewellery for customers, it will benefit larger players in the sector, who form a part of the organised workforce. It must be noted that a large chunk of the sector is an unorganised one with very few organised entities in the business.
While before GST, total duties and taxes comprised of a little over 12% for makers, post-GST, it is slightly over 14%. This will bring down the cost gap between organised and unorganised players in the sector, thus benefitting the bigger and established entities.
Tax on making charges
5% tax on making charges on gold jewellery is not helping matters for the industry. While earlier, making charges on gold jewellery didn’t attract any tax, now a 5% tax is levied on the making charges, which is further pushing up the end price and affecting consumer sentiment.
Earlier this tax was proposed to 18% which faced a severe backlash from the industry, following which the GST Council reduced it to 5%. Though this is quite less than the earlier proposed tax limit, yet insiders feel that taxes on making charges have affected the confidence of buyers, thus hurting bottom-line revenues of the industry.
A sizeable section of the industry feels that the government should do away with taxes on the making charges to bolster the sector’s growth in the long run.
A ray of hope
While the industry is still grappling to come to terms with the GST rates fixed on gold, gems and jewellery, along with taxes on the making charges, a recent announcement by the government has made the industry buoyant.
The GST Council in a recent announcement said that gems and jewellery exporters need not pay 3% IGST on the supply of gold to nominated agencies like banks and specific public sector units that led to blockage of working capital for small and medium exporters. Additionally, it increased interest cost, compliance hassle to claim refunds, consequently impacting business operations and hurting competitiveness, particularly for smaller players.
There’s a belief among players that post general elections, the GST Council can take some measures to bring down GST rates on gold, gems and jewellery to consolidate the growth of the sector in the coming days.
