With the introduction of GST on 1st July 2017 that significantly affected the price of essential commodities, gold was one such product. This impact was witnessed at different levels such as gold-jewellery making, gold import and value of gold.
When it was assumed that GST on gold would bring accountability and transparency in the gold market, on the contrary, vendors are illegally importing and shifting to the unorganized gold sector due to the hike of gold rates. Hence, it is essential to understand the final effect of GST on gold to make better investments.
What is GST on gold?
According to a recent report, import of gold jewellery witnessed a massive rise in the last two years till March 2021. This illustrates that there is a rapid rise in the demand for gold as the economy is gaining its stability slowly.
In the context of GST, whenever individuals purchase gold, they have to pay a flat rate of 3% GST. Moreover, they need to pay an additional GST of 5% on the processing charges. Individuals must note that the purchase, import and making charges of gold possess different GST rates.
However, individuals do not have to pay GST if they exchange old gold jewellery with the new one.
Impact of GST on gold items
The primary motive behind the introduction of GST was to remove all the indirect taxes prevalent in India till the date and make a unified taxation system. Also, it reduces the tax liability of business owners. Consequently, the latest impact of GST on gold comes with certain revised guidelines that business owners need to follow.
The real effect of GST on gold is reflected in its final price, which became apparently expensive by at least 0.75%. In the previous taxation system, VAT and excise duty of 1% each were paid for the gold jewellery. After the initiation of GST, all other indirect taxes were eliminated, and only 3% of GST was kept. All these changes made a significant price change in gold.
But individuals must note that the making charges will vary from one lender to another. Also, there is no specific pattern of invoices that are followed in the sector.
However, the standard formula of calculating the gold jewellery price usually followed by the jewellers are mentioned below-
Price of gold x weight in grams + making charges + 3% GST
It is to be noted that even though there is a significant rise in gold prices, GST allows Input Tax Credit, which allows consumers to avail funds against paid taxes on their outward supplies, reducing their tax liability and encouraging unorganized sectors to make a shift to the organized market.
Revised rates of GST on gold
As already mentioned, GST on gold controls the cascading effect of tax, thereby reducing the tax liability of individuals. Jewellery sectors contended with the gold price after the implementation of GST, but consumers still have some complaints about the rising price of gold.
After implementing GST, gold will be taxed at 3%, which the end customers would pay. Additionally, government has imposed a 5% tax on gold-making charges, which account for approximately 12% of the actual cost of gold. Thus, individuals need to know everything about GST on gold before availing gold loan or purchase or sell the item.
Although GST on gold resulted in greater transparency in the gold market, there are some disadvantages for the gold loan borrowers. If borrowers fail to repay the borrowed amount, lenders will have the authority to seize the pledged gold.
In such scenarios, borrowers can opt for unsecured credit like a business loan without having to pledge any asset. Reputed NBFCs like Bajaj Finserv extend substantial loan amount to eligible business owners at competitive interest rates. Moreover, borrowers can also avail pre-approved offers on a wide range of financial products such as business loan, personal loan, credit cards etc. These offer further streamline and accelerate the loaning procedure. Borrowers can check their pre-approved offer by submitting their essential credentials.
Therefore, gold is one such commodity that includes several taxes throughout its entire product cycle. Thus, borrowers can avail best offers if they are completely informed before making any decision.