Gold plays a vital role in India’s economy, functioning as both a cultural asset and an investment instrument. With the rollout of the Goods and Services Tax (GST) in July 2017, the taxation of gold was unified under a single indirect tax framework. This replaced the earlier system of excise duty, value-added tax, and service tax, bringing greater transparency and uniformity across states.
Scope of GST on Gold Transactions
Under GST law, the supply of gold is treated as a taxable event. This includes the sale of physical gold such as bars, coins, and jewellery, as well as digital gold transactions. However, certain gold-linked financial instruments, including Sovereign Gold Bonds and Gold Exchange Traded Funds (ETFs), are excluded from GST on the value of gold itself, though related service fees may still attract tax.
GST Rate Applicable to Gold
Gold is taxed at a concessional rate of 3 percent under GST. This rate applies uniformly regardless of the purity or form of gold. For intra-state transactions, the tax is split into 1.5 percent Central GST and 1.5 percent State GST, while inter-state transactions attract Integrated GST at 3 percent. The lower rate was intended to minimise price shocks and reduce incentives for tax evasion and smuggling.
GST on Gold Jewellery and Making Charges
Gold jewellery attracts GST in two distinct components. The value of the gold used in jewellery is taxed at 3 percent, while making charges, which represent labour and craftsmanship, are taxed at 5 percent. Making charges are treated as a service under GST law, leading to a higher tax rate and increasing the overall cost of jewellery compared to plain gold.
GST On Gold Jewellery Repair
The repair of gold jewellery is treated differently from the sale of gold or the manufacture of new jewellery under the GST framework. Jewellery repair is classified as a service, not as a supply of goods, because ownership of the gold remains with the customer and only labour or workmanship is involved. As a result, GST is levied on the service component rather than on the value of gold.
When a jeweller undertakes repair work such as resizing rings, soldering broken chains, replacing clasps, polishing, or restoring damaged jewellery, GST is generally charged at 18 percent on the repair charges. This higher rate applies because jewellery repair falls under general repair and maintenance services, which are taxed at the standard service rate unless specifically notified otherwise.
However, a distinction exists between repair services provided directly to consumers and job work services carried out for another registered jeweller or manufacturer. If a registered job worker repairs or reworks jewellery on behalf of a registered principal (for example, a manufacturer sending jewellery for repair or refurbishment), such activity may qualify as job work under GST law. In such cases, the concessional 5 percent GST rate applicable to job work in relation to jewellery may apply, subject to compliance with prescribed conditions and documentation.
For individual consumers, the 18 percent GST on repair charges often comes as a surprise, especially when the value of the repair is small. For example, if repair charges amount to ₹2,000, GST of ₹360 is added, taking the total cost to ₹2,360. Importantly, GST is charged only on the labour or service value, not on the intrinsic value of the gold already owned by the customer.
From a compliance perspective, GST is applicable on jewellery repair only if the service provider is GST-registered. Small neighbourhood goldsmiths or artisans who are not registered under GST are not permitted to charge GST. However, registered jewellers availing services from unregistered artisans may be liable to tax under reverse charge mechanisms in specific situations, though such provisions are currently limited in scope.
In summary, while the sale of gold jewellery attracts GST at lower concessional rates, jewellery repair services are taxed at a significantly higher rate when provided directly to consumers. This distinction reflects GST’s classification of repair as a service rather than a goods transaction and remains an important cost consideration for consumers seeking post-purchase jewellery services.
Tax Treatment of Digital Gold
Digital gold purchases are subject to GST at 3 percent at the time of purchase, as the underlying asset is physical gold stored on behalf of the buyer. No GST is levied on the appreciation in value during the holding period or at the time of sale, although platform fees or storage charges may be taxed separately as services.
GST on Gold Investment Instruments
Sovereign Gold Bonds are exempt from GST as they are classified as government securities. Similarly, Gold ETFs do not attract GST on the underlying gold value. However, fund management and other service-related charges associated with these instruments are subject to GST at the applicable service rate.
Practical Illustration of GST on Gold Purchases
To illustrate, if gold worth ₹1,30,000 is purchased, GST at 3 percent amounts to ₹3,900. In the case of jewellery, if making charges of ₹10,000 are added, GST of ₹500 is levied on those charges at 5 percent. The total GST payable thus increases, significantly impacting the final price paid by the consumer.
Input Tax Credit for Gold Businesses
GST-registered jewellers and manufacturers are eligible to claim Input Tax Credit on tax paid for gold, job work, and other business-related inputs, subject to prescribed conditions. However, input tax credit is not available for gold purchased for personal use or distributed as free gifts, limiting credit availability in certain cases.
Exchange of Old Gold and GST Issues
Transactions involving the exchange of old gold for new jewellery often raise GST-related concerns. In practice, many jewellers levy GST on the full value of the new jewellery rather than on the net amount after adjusting the old gold. This has been a recurring issue for consumers and highlights the need for clearer invoicing practices.
GST and Customs Duty on Imported Gold
GST operates independently of customs duty. Imported gold is subject to customs duty, and GST at 3 percent is applied on the value inclusive of customs duty. Recent reductions in customs duty have lowered the overall tax burden on gold imports and helped curb illegal trade.
GST on Sovereign Gold Bonds (SGBs)
Sovereign Gold Bonds (SGBs) are government securities issued by the Reserve Bank of India on behalf of the Government of India. They are denominated in grams of gold and provide investors with exposure to gold price movements without the need to hold physical gold. Importantly from a tax perspective, SGBs do not attract GST on purchase or redemption, making them a tax-efficient alternative to physical gold or jewellery. No 3 percent GST applies as it does with physical gold, and neither buying nor selling SGBs directly incurs GST. However, associated brokerage or stamp duty charged by brokers in the secondary market may attract GST at the standard service rate (commonly 18 percent) on those fees.
Taxation of Sovereign Gold Bonds and Capital Gains
Beyond GST, the income tax treatment of SGBs in India also offers advantages. SGBs typically have a fixed maturity of eight years, and if an investor holds the bond until maturity, capital gains arising on redemption are exempt from tax. This makes SGBs especially attractive for long-term investment in gold. However, interest earned on SGBs — usually around 2.5 percent per annum — is taxable under “income from other sources” at the investor’s applicable slab rate. If an investor redeems SGBs prematurely (possible after the fifth year), or sells them in the secondary market before maturity, capital gains tax applies: gains of less than 12 months may be taxed as short-term capital gains at the individual’s slab rate, while gains on holding beyond 12 months may be taxed at a flat 12.5 percent on long-term capital gains without indexation benefits under current rules.
Investing in Gold in India: Options and Tax Considerations
In India, there are several ways to invest in gold, each with different tax implications:
- Physical gold (bars, coins, jewellery) attracts 3 percent GST on the value of gold at the time of purchase and 5 percent GST on jewellery making charges, and capital gains tax on sale depending on holding period and income tax rules.
- Gold Jewellery as an investment is less tax-efficient because of GST on purchase and capital gains tax on sale, and resale values may be lower due to making charges and dealer margins.
- Digital gold purchases also attract 3 percent GST at purchase, and these products may lack regulatory protections; they are often not regulated under SEBI or RBI frameworks, which poses additional risk concerns.
- Gold ETFs (Exchange Traded Funds) and Gold Mutual Funds do not attract GST on purchase. Capital gains tax on these instruments now depends on how long they are held: short-term capital gains are taxed at slab rates if sold within a specific period, while long-term gains may incur a flat tax on gains without indexation for units held beyond the relevant period (typically 12 months for ETFs under recent rules).
- SGBs offer a combination of tax-efficient capital gains (tax-free at maturity) and taxable interest income.
Overall, direct investment in physical gold is less tax-efficient due to GST and potential capital gains tax, whereas SGBs and gold ETFs avoid GST at purchase and often provide superior long-term tax treatment, especially when held for longer periods.
Should You Invest in Gold Now?
Whether you should invest in gold now depends on your financial goals, risk tolerance, and investment horizon:
- Gold is widely viewed as a safe-haven asset and a hedge against inflation and economic uncertainty. Its historical performance has shown steady appreciation over long periods. However, like all commodities, gold prices can be volatile in the short term.
- From a tax standpoint, newer rules introduced in recent years (e.g., changes in capital gains treatment for gold holdings) have altered how gains are taxed for different investment forms, making it important to plan your holding period carefully to optimise taxes. For example, long-term capital gains for physical gold and ETFs are taxed at a flat rate after specific holding periods without indexation benefits.
- SGBs remain attractive for long-term investors because of capital gains exemption at maturity and the absence of GST on purchase, making them tax-efficient compared with physical gold. However, liquidity in the secondary market for SGBs can be limited, and premature sale may reduce tax advantages.
Investors should weigh the cost of GST, capital gains tax, and storage/security risks of physical gold against the regulatory protections and tax benefits of financial gold instruments. Financial goals, investment horizon, and tax planning are key factors in deciding the right form of gold investment.
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