When the GST Council announced the GST rates, one of the last rates to be announced was the rate of GST on gold. The Council has decided to fix the rate of GST on gold at 3%. This is almost tantamount to maintaining status quo as gold currently attracts 2% tax. This includes 1% excise duty and an additional 1% as Value Added Tax (VAT). Thus the effective impact on gold is likely to be very marginal. GST on gold was extremely critical because a very high rate of GST would have encouraged gold smuggling as getting gold into India through informal channels would have been more profitable. By setting the GST on gold at 3%, the Council has virtually negated that possibility.

Let us understand the nuances of the gold GST rate. Apart from the 2% tax currently (1% excise + 1% VAT), there is an additional cess of 0.5%. All these charges are imposed on top of an import duty of 10% on gold. Therefore, post the GST, the total impost on gold goes up from 12.5% to 13%. That is actually quite an insignificant change in the overall impost.

Why were jewellery companies impressed?
If the reaction of the gold companies on the day after the GST announcement was any indication, then the markets have surely received the news positively. Jewellery companies like Titan, PC Jewellers and Renaissance Jewellery were up sharply in stock market trades. What exactly does this rate of GST mean for gold and jewellery companies in India? The overall difference of 0.5% tax on gold is likely to be insignificant. There is a reason for the listed jewellery companies to be impressed by the GST rates. The GST, by default, is based on the principle of broader compliance and hence is likely to take away the advantages of the unorganized sector. That could be a challenging situation as the unorganized segment accounts for nearly 90% of the gold making in India.

Summing up the key implications of the GST rate of 3% on gold

With the shift to GST, the unorganized sector will come under the purview of GST. Currently, the unorganized gold making sector is outside the purview of excise duty. That will be a big positive for the organized jewellery segment.

Currently just about 2000 jewellers are registered to pay excise whereas there are estimated to be around 2.5 lakh jewellers in India. When all these jewellers are brought into the GST fold, there will be a visible improvement in government revenues from gold GST.

There could be a perceptible shift in gold demand from physical gold towards products like sovereign gold bonds. Currently, sovereign gold bonds are exempt from GST and they also pay 2% interest. The chart below captures the gold demand in India over the last 8 years..

Don't forget the advantage of seamless input tax credit (ITC)


Why Dubai jewellers are happy with the GST rate on gold
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