Before GST came into effect, customers had to pay a 1% service tax and 1% VAT on gold that amounts to a total of 2%. The total GST on gold increased to 3%, making a purchase of gold more expensive than what it was.
The Economics Times reported there is an increment of around 1.5% in the total tax and duties post announcement of GST in 2017 than before its implementation.
The value of total tax and duties on gold stood at 12.4% whereas it increased to an approximate 14% with GST on effect.
This report further claimed to have a beneficial impact of GST on gold as customers can expect more transparency on the supply of gold and bridging gap between the cost of gold in the organised and unorganised sector.
Effect of GST over the organised sector
With only 30% of the gold trade limiting to this sector, the improvised gold GST rate is higher than before. This hike in price can work in two ways –
- Either in the switching of vendors from this market to the unorganised sector.
- Improving accountability and the authenticity of the gold supply process to some extent.
These are some of the ways how GST on gold affects gold jewellery for the organised sector.
Effect of GST over the unorganised sector
A substantial portion of the total 700-800 tons of gold imported annually is smuggled through the Middle East and primarily comprises the unorganised gold sector.
This increase in rate as a result of GST on gold can be a potential reason behind the switching of several sellers towards this sector.
More than 150 tonnes of gold entered India through unofficial channels, which is an increase from 134 tonnes in 2017.
The mandatory instruction to record every transaction aims toward improving authenticity and accountability in the supply of gold.
Small and medium-sized business dealing with gold and gold jewellery can have a severe impact as GST affects the cost of gold, making charges, and the profit involved.
With the increment in the cost of gold, suppliers may struggle in seeking finances for investment. In such cases, individuals can opt for a business loan and have access to the much-needed funds for investment.
Financial companies such as Bajaj Finserv offer such loans to small businesses against nominal eligibility criteria and business loan documents.
They also provide pre-approved offers on loans that make them all the more easier to apply for. Not only the organised and unorganised sector, but the GST rate on gold also affects import rates.
Effect of GST on gold imports
An import duty of 10% is imposed in addition to the GST on gold jewellery, making the charges an all-time high. Therefore, individuals looking to purchase imported gold or planning to trade may have to bear high expenses.
Effect of GST on making charges of gold jewellery
With implementations of GST, an 8% tax was decided to be levied on making charges jewellery in addition to the GST on gold. However, this rate was re-considered and was reduced to 5% for making charges.
These different aspects show even if there is a slight increment in GST rates on gold, individuals can still remain at the beneficial end because of the assured transparency and accountability it brings in the purchase and supply of gold and gold import.
Not only gold, but GST has had its impact on several sectors. Telecom, manufacturing, trading, FMCG, and trade have been affected by GST either positively or negatively.