With the advent of digital Gold, buying, selling, repairing and even owning Gold may have become easy. However, when it comes to awareness of taxes on gold there are still confusions on several transactions.
For those who find the tax-lingo a little tricky to understand, here's a simple guide explaining the taxation concerning sale and ownership of gold along with examples.
TRANSACTIONS INVOLVING SALE OF JEWELLERY:
GST for Purchase of Gold/Jewellery:
Whether buying 24 Karat coins or bars or jewellery or of any caratage, a GST of 3 percent on the value of Gold would be billed to the buyer. The policy on the flat rate of 3 percent has been around since July 2017 (the day when GST was officially announced across India).
Example: If you are buying Gold jewellery of 22 Karat which has gold worth Rs 50,000, your bill would read a GST of 3 percent or Rs 1,500.
Depending upon the state you are buying gold jewellery from, a cess may be added on top of the State GST. For example, the state of Kerala and several Southern States saw a 0.25 percent cess towards Kerala Flood Cess in May'19. For a Rs 50,000 jewellery, the cess works out to Rs 125 which may be added by the jeweller.
For other jewellery elements, here is the GST rate:
1. Rough & Polished Diamonds: 0.25 percent. An announcement in 2018 brought diamonds to 0.25 percent structure from 3 percent.
2. Platinum, Palladium, Rhodium: 3 percent
3. Silver: 3 percent
4. Filigree involving Silver and Gold: 3 percent each for Silver and Gold
5. Precious and semi-precious stones: 3 percent.
GST on Making Charges:
Many buyers encounter difficulty understanding GST calculation on making charges. The confusion arose with jewellers claiming refund for job workers (karigars) which was 5 percent of the service. For jewellery buyers the good news is many jewellers offering zero making charges thereby removing the confusion on GST on making charges. For those wanting a clarification, the Central Board of Excise and Customs' (CBEC) recent definition is more reasonable, it said, "GST is payable at the rate of 3% of the total transaction value of jewellery, whether the making charge is shown separately or not."
The CBEC FAQ very clearly illustrates that only 3 percent GST is essential. Jewellers can claim an input credit either in direct or reverse charge mechanism. Ideally, the only tax that a customer should pay for the jewellery is the 3 percent GST and not tax on making charges. However, you should know that in the initial days of GST, the tax on making charges was as high as 18 percent and was brought down after prolonged discussions with the GST committee.
For jewellers, the CBEC clarification on works and making charge is as follows: "The job worker, if registered, would be required to pay GST at the rate of 5% on job charges only. The jewellery manufacturer would in turn take credit of GST paid on such job work and may utilize the same for payment of GST on his outward supply of manufactured jewellery. However, if the job worker is exempted from registration, the jewellery manufacturer would be required to pay GST on his input supply from the job worker [of jewellery made out of precious metal given by him] on a reverse-charge basis. Nonetheless, he would be eligible to avail input credit of the tax so paid under reverse charge mechanism."
According to the India Bullion Jewellers Association, jewellers can claim a 2 percent refund as input on making-charges. Several leading institutions and agencies have clearly stated that it is only 3 percent GST that is customer-facing and not the making-charge. With many jewellers offering zero making-charges the bill may still have the making charge header. Many of our readers have pointed out that the making-charge at small karigars can go up to between 5 percent on the making charge component. The amount is usually negligible to be included into the cost of Gold, but when the designs are intricate and the work takes several day, the tax on making charge can be significantly higher.
GST for Repairs of Jewellery:
If the repairman is a small workshop, he may add a 5 percent GST on the making charge. However if the repairman involved is a large enterprise, the tax he may claim could be as high as 18 percent. For any Gold added, the jeweller will add a GST of 3 percent plus the value of the Gold to the bill.
To understand this transaction, let us look at the example of a customer repairing a ring of 1 gram.
Repair Charge = Rs 500
GST @ 5% = 25
Total = Rs 525
In case, the repairman adds 1 gram of 23 Karat Gold valued at Rs 5,000, the transaction is considered as a new item and accordingly a making-charge computed at 5 percent GST or making-charge also gets added to the bill:
Cost of Gold = 5,000
GST @ 3% = 150
Making Charge @ 10 percent = 500
GST on making charge @ 5% = 25
Total = Rs 5,625
GST on EXCHANGE:
According to GST any sale of Gold by a registered business is taxed at 3 percent of the value of Gold. In a 2017 clarification, the then finance minister clarified that sale of Gold by an individual is not a "furtherance of his business" and hence exchange of Gold for repair or for personal usage is taxed at zero GST. However, the customer will have to pay a 3 percent GST for the final product.
For example, if a customer is exchanging a Gold coin of 10 grams for 10 grams of an ornament, he will have to pay GST on the value of Gold in the final product - ornament, in this case.
In transactions where an 18 Karat Gold ornament is returned for an ornament of higher caratage, the jeweller is likely to add melting charges and higher making charges. Melting charge or even wastages are a part of the making charges header and hence would be subsumed within GST on making charges.
Some of the pre-GST taxes such as customs duty and tariffs are still applicable if the transaction involves transporation of Gold from an overseas location. The customs duty works to ten percent of the value of Gold. There is no excise per se but tariffs computed by the CBEC and GST on top of these tariffs are applicable.
GOLD & INCOME TAX:
Whether you are receiving Gold as a gift or selling Gold, there is an aspect of Income Tax that you must compute. Depending upon the period of ownership, the income tax is computed as follows:
1. Short Term Gains: For ownership within three years, the gains made on sale of Gold are computed to the existing income slab and accordingly computed.
2. Long-Term Gains: Taxed at 20.8 percent (includes cess) alongside indexation benefits. Indexation refers to factoring in the cost of inflation.
3. Selling Gold received as Gift: Depending upon the period of ownership.
For any valuation, the tax agency would need to know your total Gold ownership, the period of holding and also the source of acquisition. Therefore it is advisable to retain receipts for as long as possible.
In case of gold that has been passed on from a generation to the other or has been gifted from blood-relatives, the invoices or receipts will prove the ownership duration and valuation.
For gold received from blood relatives such as parents or siblings, there is a zero tax on receipt. For gifts from non-relatives with value beyond Rs 50,000 the tax is bracketed under the header of "income from other sources" in the annual tax file
The tax agency computes Gold jewellery and ornaments according to the fair market value (FMV). The FMV considers transactions for only up to 1 April 2001. For transactions prior to this date, one will have to enrol the service of an income-tax registered valuer to conduct the market value prior to the FMV date.
Tax on Gold ETFs, Mutual Funds, Bonds & Digital Gold:
1. ETFs: Taxes are computed similar to physical gold - short-term and long term capital gains.
2. Digital Gold & Mutual Funds: Similar to physical gold
3. Sovereign Gold Bonds: For SGBs, the subscriber is exempt from tax during redemption, however the 2.50 percent interest earned is taxable (no TDS applicable). Also LTCG relief is offered in the form of indexation benefits during transfer of bonds.