Understanding Goods and Services Tax on Gold Purchases in India

The introduction of the Goods and Services Tax (GST) has brought substantial changes to gold taxation in India. A standard 3% GST rate is now applied to both 24-carat and 22-carat gold, impacting the purchase of physical gold items. This tax system has notably reformed the way gold is taxed across the country.

The GST on gold in India is 3% (1.5% CGST + 1.5% SGST) of its value. For instance, buying gold worth ₹1,00,000 would incur ₹3,000 in GST. This unified rate is applicable to various gold forms, such as jewelry, coins, and bars.

This document provides an overview of the GST rates pertinent to gold and details its application during gold transactions.

Recent Tax Updates on Gold Imports

In the Union Budget 2024, the Finance Minister declared a 9% reduction in the customs duty for imported gold. The Central Board of Indirect Taxes and Customs (CBIC) later issued notifications outlining the revised rates. The table below illustrates these changes.

| Custom Duty Type/Rates | Gold Bar and Findings | Gold Dore | | --- | --- | --- | --- | | Old | New | Old | New | | Basic Custom Duty (BCD) | 10% | 5% | 10% | 5% | | Agriculture Infrastructure and Development Cess (AIDC) | 5% | 1% | 4.35% | 0.35% | | Total | 15% | 6% | 14.35% | 5.35%

GST Rates on Gold

In India, gold is typically sold in 24-carat and 22-carat purities, each with specific GST rates as detailed below:

24-Carat Gold GST Rate in India

The Goods and Services Tax for 24-carat physical gold is fixed at 3%. This rate applies uniformly to all variations of pure gold, including bars, coins, and jewelry.

22-Carat Gold GST Rate in India

Similarly, 22-carat physical gold is also subject to a 3% GST. This rate is levied on the gold component found in 22-carat jewelry, bars, or coins.

GST on Digital Gold

Purchases of digital gold are subject to a 3% Goods and Services Tax.

GST on Gold Investment Schemes

Investment products such as Gold ETFs, Sovereign Gold Bonds, and Gold Mutual Funds typically do not incur GST on the intrinsic value of the gold. Nevertheless, various service charges, management fees, or other administrative costs linked to these schemes are subject to GST. Investors should therefore consider these additional fees, which may attract an 18% GST rate.

Harmonized System of Nomenclature (HSN) Codes for Gold

The following table outlines the HSN codes for different gold products and their corresponding GST rates:

Calculating GST on Gold

An illustrative example comparing gold prices before and after the implementation of GST is provided below:

Input Tax Credit (ITC) for Gold Businesses

Jewellers and gold traders are eligible to claim Input Tax Credit (ITC) for GST paid on raw materials like gold and associated job work expenses. Furthermore, if a gold merchant pays tax under the reverse charge mechanism for supplies received from an unregistered job worker, they are still permitted to claim the corresponding ITC.

Significant Advance Rulings on GST for Gold

Several advance rulings have clarified the application of GST to gold transactions:

Karnataka AAR: M/s Attica Gold Pvt. Limited (March 23, 2020)

Issue: The gold company, which purchases second-hand gold from unregistered individuals, sought clarification on:

1. Valuation: If GST should be applied only to the difference between the selling and purchase prices, as per Rule 32(5) of the CGST Rules, when there is no alteration in the gold's type or quality.
2. ITC Claim: If the company could claim ITC for purchases from dealers where the margin scheme is applicable.

Ruling:

1. Valuation: Yes, if the company issues an invoice for second-hand goods without changing their form, valuation for GST purposes will follow Rule 32(5) of the CGST Rules. GST is levied only if the selling price exceeds the purchase price. No GST is applied if the purchase price is higher. A key condition for this rule is the non-availment of input tax credit.
2. ITC Claim: ITC is permissible if second-hand gold jewelry is purchased from a registered person. In such cases, the margin scheme will not be applicable for the subsequent sale by the gold company.

Maharashtra AAR: M/s Biostadt India Limited (December 20, 2018)

Issue: A company dealing in crop protection chemicals and hybrid seeds launched a sales incentive program, the 'Kharif Gold Scheme 2018', offering gold coins to customers based on purchase quantity and payment. The company inquired about:

1. ITC Claim: Eligibility for input tax credit on gold coins acquired for sales promotions.
2. ITC for Similar Schemes: Availability of ITC for other comparable schemes.

Ruling:

1. ITC Claim: No, ITC cannot be claimed for purchased gold coins. The distribution of gold coins does not align with the taxpayer's principal business, as required by Section 16 of the CGST Act. Furthermore, Section 17(5) on blocked ITC, which supersedes Section 16, explicitly disallows ITC claims for goods disposed of as gifts. The gold coin distribution under this scheme is categorized as a ‘gift’.
2. ITC for Similar Schemes: No, ITC is not available for any other similar promotional schemes.