is composition scheme applicable to jewellery and making charges?
because composition scheme not applicable to services except restaurant.sale of jewellery involves making charges as a service.please clarify.
GST Impact on Gold: is it Worth Buying?
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Anvi Sharma  10 July 2017
Gold has always been an all time favourite asset among Indian consumers. But with GST implementation post July 1, 2017, this yellow metal has attracted 3% GST rate although higher than the previously applicable taxes. Prior GST taxes include 1% excise duty and 1.5% VAT, it is below the expected GST of 5%. Customs duty will continue with GST on gold and would be charged at 10% . However, processing charges will be taxed at 5%. Overall, an approximate industry average processing charges are around 12% of the gold price. Before GST, total taxes and duties are nearly 14%. Big players such as Titan, owner of the brand 'Tanishq' would be the largest beneficiaries as the cost gap between the organized and unorganized players will come down.
Will GST increase Gold price?
Let us understand from a simple example:
Mrs. Sunita Dutta has bought gold worth ₹ 100 for which she has paid 3% GST i.e. ₹ 3. The total cost comes out to be ₹ 103. Now after six months, she wishes to sell this gold and presuming the gold price remaining constant, she will only get ₹ 100 and the GST amount would be bygone at the consumer level.
In the above example, you can clearly see the immediate impact of GST rate on the investment buying of gold by the customer as the resale value will fall down by 3 %.
Effect of GST on Gold price
Here, we can clearly see the difference between pre GST and post GST by taking an example:
Pre GST scenario
The calculation is done for determining the jewellery price as :
Total price Gold jewellery before GST = Price of Gold+Custom Duty at 10% +Excise duty at 1% +VAT at 1.2%+ Making charges on Gold jewellery
Taking base rate of Gold at ₹ 100, the calculation would be:
Total price Gold jewellery before GST = (100+10+1.1+1.3+13.2)=₹125.6
Total Taxes and Duties levied pre GST =(Custom duty+Excise+VAT)
=(10+1.1+1.3) =12.4%
Post GST scenario
The calculation is done for determining the jewellery price post GST as:
Taking base rate of Gold at ₹ 100, the calculation would be:
Total price Gold jewellery after GST =Price of Gold+Custom Duty at 10% +GST at 3%+ Making charges on Gold jewellery+GST on making charges
=(100+10+3.3+13.2+0.7)=₹127.2
Total Taxes and Duties levied post GST =(Custom duty+GST at 3%+GST on making charges at 5%)=(10+3.3+0.7) =14%
GST effect on Gold Jewellery
Post GST 1 tax reforms, there would a big relief for jewellery and diamond processing industry as GST Council has decided to bring down the applicable rate on making charges from 18% to 5%.
The GST Council has brought down the tax levels in 88 out these 133 cases. The diamond processing and others would attract a GST of 5% now.
Now-a-days, the tax has been exempted on jewellery making charges. During the start of this month, the GST Council meeting has kept GST on precious metals and diamonds including jewellery at 3%. However, tax on making charges of jewellery was fixed at 18%.
Tax on making charges would have in turn hiked the tax rate for consumers to over 4%, almost double of what was presently being charged in the form of 1% on VAT and excise duty on jewellery.
GST effect on Gold Ornaments
Are you looking to exchange your existing gold ornaments? Wait until you see how GST is making you pay tax twice.
This issue confronts with GST application as the transactions involve repair of exchange of gold ornaments. The consumers who are willing either to exchange or repair gold might not only have to incur 6% as GST rate on gold but also an additional 5% on making charges. This is particularly known as the double taxation effect as per the industry professionals. During the gold exchange, the dealer first pays a reverse rate of 3% to the GST as he/she buys gold from the customer. This is recovered from the customer. The dealer also charges tax rate of 3% GST for the new gold they exchange for it. The customer evidently has to bear an extra cost for the exchange. For example : in a transaction entailing a customer looking to exchange 10gm necklace priced at ₹ 28090, the customer is deducted an extra ₹ 842.70. The dealer deducts 3% while buying back the gold from the customer (at ₹842.7). The customer cannot claim and the customer by virtue of not being registered doesnot have the provision for claiming the refund. In cases of repairs, the customers will be pushed to pay 18% GST if the transaction consists of making gold ornaments from gold bars. GST rules specify that the work outsourced by the registered jeweller for a customer will charge 18% tax.
The GST rules have fixed the industry on the norms, but it discourages the jewellers from outsourcing their work to 'karagirs/karigar'. The jewellers will be pushed hard to bear an 18% GST rate on making charges in the circumstances of job-work outsourced. The customer again will have to levy an additional cost. However, this could overall impact the sector and the GST network should seek a clarification since the industry does not operate in a principal-agent relationship. As such, there are no industry standards when it comes to making charges, however trade professionals say that it is an average of 10% of the value of the gold.
Now, it is clearly indicated after going through the article that you have to pay a high price if you buy the gold or undergo for any repairs or exchange.
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