GST on Diamond Jewellery in 2022 [Tax Rates, HSN Codes]

The diamond and gold industry contributes substantially to the Indian GDP, around 7.5% to be precise. It also forms around 14% of the total exports of the country. This industry directly employs over 60 lakh workers. All these statistics reveal the significance of this industry.

The government introduced GST on 1 July 2017; we are currently in the 4th year of this regime. Everybody still seems to be figuring out its impact on various sectors, especially in the hands of small and medium business owners. Through this post, we try to decode the GST on diamond jewellery and gold jewellery industry.

The latest GST rates on diamond and gold jewellery

Under the GST regime, tax rates can be complicated to decipher. We aim to overcome this by explaining the GST rates via a tabular representation as below. It is pertinent to understand this before we get into the GST on diamond jewellery and gold jewellery.

Regarding the above table, most of the purchases fall into point 3 category and therefore taxed at 3%.

GST on diamond and gold jewellery

Now that we are familiar with the GST rates, we move ahead to understanding the GST on diamond jewellery and gold jewellery. For this, we must understand the concepts of composite supply and mixed supply. The calculation of GST directly depends on this. Through the below scenarios, we explain these concepts.

Scenario #1 [COMPOSITE SUPPLY]: If you, as a customer, buy diamond or gold jewellery (GST @ 3%) for Rs 1,00,000 and incur making charges (GST @ 5%) of Rs 10,000 (whether or not shown separately), the total outflow will be - Rs 1,13,300. The GST on diamond jewellery and gold jewellery will be @ 3% on Rs 1,10,000 purchase. Since gold or diamond jewellery is the principal supply, the entire transaction will be taxed at its rate, that being 3%. This scenario is a classic case of composite supply.

Scenario #2 [MIXED SUPPLY]: If you, as a customer, buy diamond or gold jewellery(GST @ 3%) and as part of a promotion is offered a watch (GST@ 18%) along with the purchase, totalling to Rs 5,00,000 for both items. The total outflow will be - Rs 5,90,000. The GST on diamond jewellery or gold jewellery will be @ 18% on Rs 5,00,000 purchase. Since jewellery and watches are not naturally bundled and are capable of sale independently, the highest GST rate shall be applied, in this case, being 18%. This scenario is a classic case of mixed supply.

Now that these concepts are clear, we move ahead with practical scenarios that will explain the GST on diamond jewellery and gold jewellery.

Scenario #3 [PRECIOUS STONE STUDDED DIAMOND JEWELLERY]: If you, as a customer, buy ruby studded diamond jewellery for Rs 1,00,000, the total outflow will be - Rs 1,03,000. The GST on diamond jewellery will be @ 3% on Rs 1,00,000 purchase, although ruby being a precious stone, attracts a lower rate of 0.25%. This is because diamond jewellery is the principal supply and the entire transaction will be taxed at its rate, that being 3%. This is also a case of composite supply.

Scenario #4 [USED JEWELLERY]: If you, as a customer, sell your used diamond or gold jewellery, there will be NO impact of GST on diamond jewellery or gold jewellery. Since these are personal jewellery and not furtherance to business, it is not treated as supply under the GST regime.

Scenario #5  [EXCHANGE]: If you, as a customer, sell your old diamond or gold jewellery for Rs 50,000 and in return receive Rs 1,00,000 worth of new jewellery, then your total outflow will be Rs 53,000. The GST on diamond jewellery or gold jewellery will be @ 3% on Rs 1,00,000 purchase and reduced by 50,000 (value of your old jewellery). This is a crucial impact that is often misunderstood.

Conclusion

During the initial rollout of the GST regime, we witnessed widespread job losses and the closure of many job-work units. Gujarat, being India’s hub for diamond production, was at the forefront of this enormous slump. However, things have stabilised and we are witnessing tremendous growth in this industry again. This change can be largely attributed to the many favourable decisions taken by the Finance Ministry.

We sincerely hope our comprehensive post on the GST on diamond jewellery and gold jewellery will assist you to make an informed decision on your next purchase of diamond and gold jewellery. For more such non-theoretical content, keep visiting Ok Credit. You can also check out our app OKCredit, which can help you manage your business transactions.

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FAQs

Q. As a customer purchasing diamond and gold jewellery, will the introduction of GST adversely affect me?

Ans: In comparison between the old tax regime and the current GST regime, there will only be a marginal increase in the value of your purchase. This is because the old tax regime had various taxes like VAT, service tax etc, and the GST regime subsumed all of it.

Q. What is the GST rate applicable to diamond and gold jewellery?

Ans: 3% is the applicable GST rate on the purchase of diamond and gold jewellery.

Q. Will I have to pay GST if I buy diamond or gold jewellery directly from a goldsmith?

Ans: Yes. If you, as a customer, directly approach a goldsmith and buy diamond or gold jewellery, the impact of GST on diamond jewellery and gold jewellery will be @ 5%, subject to the condition that he is registered under GST.