In a significant relief to gold traders of the country, the Indian Government has withdrawn the 3% IGST levied on the supply of gold from Nominated Agencies (financial institutions and PSUs). The Government has also ensured them that it will actively look into specific other recommendations for GST on gold jewellery put forward by the Gem & Jewellery Export Promotion Council (GJEPC).
This change in the tax policy came into effect since 1st January, 2019, after the government issued a notification. To understand the full implications of this move, one has to understand GST and how GST affects gold jewellery.
Understanding GST in 2019
GST is a universal taxation system implemented in the middle of 2017. It replaces multiple Central and State taxes and brings all goods and services under one tax scheme. Numerous taxes like Excise Duty, Entertainment Tax, Cess, VAT, Entry Tax etc. are now obsolete due to GST.
In the previous taxation system, goods and services were taxed independently at various points of economic transactions. It was often confusing and led to double taxation or cascading tax effect. For example, each state used to collect VAT according to their individual rates. GST eliminates that possibility with a uniform tax rate to be followed across the country.
There are three tenets of GST, namely CGST, SGST, and IGST. The central government collects CGST and IGST whereas state governments collect the SGST. When a commodity is sold within a state, it is subject to CGST and SGST. When there is a movement of a product between states, it is subject to IGST.
IGST exemption on gold jewellery
Coming back to the gold industry, the GST rate on gold is set at 3%. It is a special rate as the standard tax slab starts at 5%. However, it is still higher than the previous taxes put together (1.2% VAT+1% Excise Duty). There is an additional 5% GST on the making charges, taking the gold price for an average consumer even higher.
The higher GST gold rate has led to the increase of gold prices, which has put a burden on the consumers and led to a decrease in demand. Gold prices have been rising consistently after GST and haven’t come below the 30,000-mark even once since GST was introduced (it was 29,810 in May 2017, a month before GST implementation).
To counter this effect to a certain degree, a recommendation was submitted to the Government to do away with the 3% IGST on gold supplies from Nominated Agencies.
According to sources, it was done to comply with the First Schedule of the Customs Tariff Act of 1975. It includes a scheme known as “Export Against Supply by Nominated Agency” which prohibits any tax under those circumstances.
This exemption provides relief to the gold industry in general and small gold traders in particular who were hit worst by the rising prices and falling demand. The upfront payment of GST on gold jewellery had left many small enterprises reeling with fund blockage. Many of them had to take loans from financial institutions to stay afloat in the challenging market.
Leading NBFC Bajaj Finserv has become one of the most sought-after courtesy their attractive EMIs, flexible repayment tenors other than a number of industry-first additional benefits.
After the scrapping of IGST on gold supply, industry insiders are hopeful that the Government will soon take further actions on a host of other recommendations by the gold industry.