The Goods and Services Tax (GST) is a value-added tax that replaced multiple indirect taxes in India. It was implemented on July 1, 2017, with the aim of simplifying the taxation system, reducing tax evasion, and boosting the country’s economy. The GST applies to almost all goods and services, including gold.
Gold has been a precious metal for centuries and has always been a popular investment option. However, the GST has impacted the gold market significantly. In this blog, we’ll explain the GST on gold, its rate, impacts, and possible exemptions.
GST on Gold: Rate and Applicability
The GST on gold is 3%, which is quite lower than the earlier tax rates. Earlier, gold attracted a 1% excise duty tax and 1.5% value-added tax (VAT) or sales tax. The GST on gold includes a 2.5% central GST (CGST) and 0.5% state GST (SGST) or union territory GST (UTGST).
The GST applies to all gold purchases, including jewellery, bars, coins, and even goldsmith services. However, there are some exemptions to the GST on gold, which we’ll discuss later in this blog.
Impacts of GST on Gold
The GST on gold has had a significant impact on the gold market. Firstly, the introduction of the GST has led to an increase in the gold rate in Kerala. This is because the tax rates on gold have increased, and the additional costs are passed on to the customers.
Moreover, the GST has made it mandatory for gold jewellers to register themselves under the GST regime. This has resulted in increased compliance costs for jewellers, further leading to an increase in the gold rate in Kerala.
The GST has also led to a reduction in demand for gold jewellery. Due to the increase in the gold rate in Kerala, customers are now opting for other investment options, such as mutual funds, stocks, and bonds. This has led to a decline in the gold jewellery industry, which was once a significant contributor to the Indian economy.
Possible Exemptions to GST on Gold
Although the GST on gold applies to all gold purchases, there are some exemptions. Here are some of the possible exemptions to the GST on gold:
Gold Monetisation Scheme (GMS)
The GMS was introduced in 2015 to mobilize gold held by households and institutions in the country. Under this scheme, customers can deposit their gold with banks and earn interest on it. The interest earned is exempted from income tax, and the deposits are exempted from the GST.
Gold Sovereign Bonds
Gold Sovereign Bonds (GSB) are government securities that are denominated in grams of gold. These bonds offer investors an alternative to owning physical gold. The interest earned on GSB is exempted from income tax, and the bonds are exempted from the GST.
Export of Gold Jewellery
Export of gold jewellery is exempted from the GST. This is because the GST is a domestic tax, and the government does not want to burden exporters with additional costs.
In conclusion, the GST on gold is 3%. This levy has caused an increase in gold prices and has led to a decreased demand for gold jewellery. However, the exemptions mentioned above offer customers alternative investment options and spur the growth of the gold industry in India. Hence, the application of GST on gold has both positive and negative implications for the gold industry in India.