GST on Gold and Jewellery — 3% Gold Rate, Making Charges and Old Gold 2025

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GST on Gold and Jewellery — 3% Gold Rate, Making Charges and Old Gold 2026

GST on gold is 3%, but that single number does not tell you what you will actually pay at the counter — or collect at your billing desk. A standard jewellery invoice in FY 2026-27 carries two distinct tax lines: 3% on the metal value and 5% on making charges. Layer in an old-gold exchange and you need a third set of calculations. This post gives you the complete rate table, the correct invoice structure, valuation rules for exchange transactions, HSN codes, ITC boundaries, and a full worked Rs. example — enough to audit any jeweller's bill or train your own billing staff.

GST Rate Table: Gold, Jewellery and Everything Around It

Get the rate map right before touching an invoice.

Two things stand out. First, precious stones attract only 0.25%, which matters when you calculate GST on a diamond-set necklace — you must split the invoice by component, not lump everything at 3%. Second, making charges at 5% are higher than the metal rate of 3%. That asymmetry is why the invoice structure matters enormously.

What about GST on gold coins sold by banks? Coins of gold (HSN 7118) attract 3% GST. Sovereign Gold Bonds are securities, not goods, and do not attract GST on purchase.

Composite Supply vs. Mixed Supply: Why Every Jeweller Needs to Understand This Distinction

When a jeweller sells a finished necklace, is the transaction one supply or two?

Under Section 8 of the CGST Act, 2017, a composite supply is a bundle where one element is the principal supply and the rest are naturally bundled with it. A mixed supply is an artificial bundle of independent supplies sold for a single price.

Jewellery sale is a composite supply — the gold (good) is the principal supply, and making charges (service) are ancillary. Under the strict composite supply rule in Section 8(1), the rate applicable to the principal supply — 3% — governs the entire transaction.

The Practical Reality

Here is where theory and trade practice diverge. Multiple Advance Authority for Ruling (AAR) orders — including rulings from Rajasthan and Tamil Nadu AARs — have held that making charges billed separately on the same invoice constitute a distinct supply attracting 5%, because the customer is explicitly purchasing a service (craftsmanship) that can in principle be obtained independently.

The CBIC has not issued a definitive national circular settling this split. In practice, the industry follows a bifurcated invoice approach: 3% on metal value and 5% on making charges, separately shown. GST department field officers have generally accepted this structure.

Your safe position: Bill exactly as your peers do — 3% on gold value and 5% on making charges on the same tax invoice, with both amounts clearly itemised. Maintain consistent treatment across all invoices at all branches. If you flip between composite (3% on total) and split treatment invoice by invoice, you create reconciliation problems in GSTR-1 and a paper trail that invites scrutiny.

Making Charges in Detail: Rate, Invoice Structure and the Karigar Chain

When You Sell Finished Jewellery

If you are a jeweller who designs, manufactures and sells finished jewellery:

1. Calculate gold value: weight in grams × price per gram (as per daily rate sheet or as agreed)
2. Calculate making charges: either a flat amount or a per-gram rate
3. Apply 3% GST on gold value and 5% GST on making charges
4. Show both lines separately on your tax invoice under Section 31 of the CGST Act

When You Send Gold to a Karigar (Job Work)

If you send client gold to an artisan for manufacturing under the job work framework of Section 143 of the CGST Act:

• The karigar issues a job work invoice and charges 5% GST on job work value only — not on the gold, which belongs to the principal (you)
• You must issue a job work challan when the gold leaves your premises and record it in your stock register under Rule 45 of the CGST Rules
• Finished jewellery must return within 1 year (for inputs) or 3 years (for capital goods) — breach of this timeline triggers deemed supply under Section 143(3)
• You can claim ITC on job work charges paid, subject to the restrictions discussed later

What "Making Charges" Can Include

Making charges in a tax invoice may legitimately cover labour, wastage allowance and a design fee. They cannot include the gold metal cost — that must remain separately classified. Bundling metal cost into making charges to reduce the effective GST rate to 3% on the blended figure is a known audit trigger.

Old Gold Exchange: The Valuation Question Every Jeweller Gets Wrong

Exchange transactions are the highest-risk area for GST errors in jewellery retail. Two separate legal questions arise.

Question 1: Is the Customer's Old Gold a Taxable Supply?

When an individual brings in personal jewellery — inherited, gifted, or simply accumulated — and exchanges it for new jewellery, the individual is not making a supply in the course of furtherance of business. Section 7 of the CGST Act defines supply as transactions made "in the course or furtherance of business." A private individual selling personal assets does not meet this test.

Practical implication: You, the jeweller, do not need to pay GST under Reverse Charge Mechanism (RCM) when purchasing old gold from a private individual — provided you document the transaction clearly (the individual's name, PAN if the amount exceeds Rs. 2 lakh, and a declaration that the gold is personal property).

Caution: If you buy old gold from a scrap dealer, another jeweller, or any registered or regularly dealing person, the situation changes. Verify the supplier's registration status and applicable RCM notifications before assuming no tax liability.

Question 2: What Value Do You Charge GST On?

You charge GST on the full invoice value of the new jewellery, not on the net amount after deducting the old gold. The exchange amount is a payment mechanism, not a reduction of taxable value.

Correct invoice structure for an exchange transaction:

`` Value of new jewellery (gold + making charges) Rs. X Less: Old gold exchange value (Rs. Y) Net cash payable by customer Rs. X – Y GST charged on Rs. X (full value, not X – Y) ``

The GST must be collected on Rs. X. A jeweller who charges GST only on the cash balance (Rs. X – Y) is under-reporting taxable turnover — a position that does not survive a GST audit.

How to Show It on the Invoice

Under Rule 46 of the CGST Rules, a tax invoice must show the taxable value separately from the tax amount. For exchange transactions, add a disclosure line: "Old gold of [weight] grams at Rs. [rate] per gram adjusted against invoice value. GST calculated on full jewellery value of Rs. [X]." This protects you if the assessment officer questions why the cash collected is less than the invoice value.

HSN Classification Under Chapter 71: Codes You Actually Need

Chapter 71 of the Customs Tariff (adopted into GST schedules) covers natural/cultured pearls, precious stones, precious metals, and jewellery. For billing and GSTR-1 HSN summary purposes, use six-digit HSN codes (mandatory for annual turnover above Rs. 5 crore; four-digit for Rs. 1.5–5 crore; below Rs. 1.5 crore, HSN is optional but good practice).

Common error: Using HSN 7108 (raw gold) for finished jewellery. The 3% rate is the same, but the GSTR-1 HSN summary will show a mismatch against your purchase HSN if the codes do not flow logically through your books. Tax officers reviewing HSN summaries flag misclassified outward supplies even when the rate is correct.

E-Invoicing and GSTR-1: What Jewellers Must Do in FY 2026-27

E-Invoicing Applicability

E-invoicing (generation of an Invoice Reference Number, or IRN, on the Invoice Registration Portal — IRP) applies to all registered taxpayers whose aggregate turnover exceeded the notified threshold in any preceding financial year. As of FY 2026-27, the threshold is Rs. 5 crore; confirm the current notification on the CBIC website or GST portal before each financial year begins, as the government has progressively reduced this limit.

If you are in scope:

1. Generate the e-invoice JSON from your billing software
2. Upload to the IRP (accessible via NIC or private IRPs like Cleartax, Tally, etc.)
3. Receive the IRN and QR code
4. Print or embed both on the physical invoice
5. B2C invoices are exempt from e-invoicing — you need an e-invoice only for B2B supplies to registered buyers, SEZ units, and exports

GSTR-1 Filing

• Report all B2B sales in Table 4 of GSTR-1 (with GSTIN of buyer)
• Report B2C sales above Rs. 2.5 lakh in Table 5 (state-wise summary)
• Report smaller B2C sales in Table 7 (consolidated)
• File the HSN-wise summary in Table 12 with correct HSN, UQC (UNT for units), quantity and value
• Due date: 11th of the following month for monthly filers; 13th of the month following the quarter for QRMP filers

Stock register under Rule 56: Rule 56(1) of the CGST Rules requires every registered person dealing in precious metals to maintain a stock register showing description (including purity/hallmark), quantity in grams, opening balance, purchases, sales and closing balance — updated daily. A GST audit of a jeweller almost always starts with a reconciliation of the stock register against purchase invoices and GSTR-3B outward supply figures.

Input Tax Credit: What Jewellers Can and Cannot Claim

What You Can Claim

• ITC on packaging materials used for taxable supplies
• ITC on advertising and marketing services
• ITC on office IT infrastructure, computers, billing software
• ITC on job work charges paid to karigars (5% GST, claimable against output tax)
• ITC on capital goods such as jewellery-making machinery (subject to depreciation/ITC choice)
• ITC on inward freight for gold purchases from registered suppliers

What You Cannot Claim — Section 17(5) Blocked Credits

• ITC on motor vehicles (unless you are in the business of transportation or motor vehicle dealing)
• ITC on food and beverages (staff canteen, client entertainment)
• ITC on construction of immovable property (branch renovation or showroom fit-out) — a significant cost for jewellers opening new stores
• ITC on personal consumption expenses

The Gold Bullion Purchase Problem

When you buy gold from a bank or bullion dealer, the bank charges 3% GST. You can claim this ITC when you use the gold to make taxable jewellery for sale. However, you cannot claim ITC on gold purchased for making jewellery exempted from tax (there are no GST-exempt jewellery supplies in practice, but watch for any specific government notification on this).

Reconcile ITC claimed in GSTR-3B with ITC available in GSTR-2B every month. The GST department's ASMT-10 scrutiny notices to jewellers increasingly cite excess ITC claims where GSTR-2B and GSTR-3B diverge.

Reverse Charge Mechanism on Gold Purchases: The Narrow Cases

Section 9(4) of the CGST Act empowers the government to impose RCM when a registered person purchases from an unregistered supplier in notified categories. For gold, the relevant question is: when does RCM apply?

• Private individual selling personal jewellery: As analysed above, this is generally not a supply in the course of business, so RCM does not arise
• Unregistered scrap dealer or small trader selling gold scrap: If such a dealer is not registered and the transaction is in the course of business (even informal), CBIC notifications may bring it under RCM — check Notification No. 7/2019-CT(R) and any subsequent amendments for the current list of goods under Section 9(4) RCM
• Import of gold: IGST at 3% is levied at the customs stage; no separate GST is payable on import; customs duty (as notified by Ministry of Finance from time to time) is additional

Action point: Do not rely on pre-2022 practice guides for RCM on gold. The notification list has been amended multiple times. Pull the current version of Notification No. 7/2019-CT(R) (and its amendments) from the CBIC notifications repository before processing any purchase from an unregistered supplier.

Worked Example: Complete GST Calculation on a Jewellery Purchase With Exchange

Scenario: Priya buys a 22-carat gold necklace weighing 25 grams from a registered jeweller in Mumbai in July 2026. The jeweller's gold rate is Rs. 8,800 per gram (22-carat). Making charges are Rs. 600 per gram. Priya exchanges her old 22-carat bangles weighing 10 grams; the jeweller values old gold at Rs. 8,200 per gram.

Step 1: Calculate the Gold Value of the New Necklace

> 25 grams × Rs. 8,800 = Rs. 2,20,000

Step 2: Calculate Making Charges

> 25 grams × Rs. 600 = Rs. 15,000

Step 3: Calculate Total Jewellery Value (Before GST)

> Rs. 2,20,000 + Rs. 15,000 = Rs. 2,35,000

Step 4: Calculate GST

> GST on gold value: 3% × Rs. 2,20,000 = Rs. 6,600 > GST on making charges: 5% × Rs. 15,000 = Rs. 750 > Total GST = Rs. 7,350

Step 5: Total Invoice Value

> Rs. 2,35,000 + Rs. 7,350 = Rs. 2,42,350

Step 6: Apply Old Gold Exchange

> Old gold: 10 grams × Rs. 8,200 = Rs. 82,000 > Net cash payable by Priya: Rs. 2,42,350 − Rs. 82,000 = Rs. 1,60,350

> GST is charged on Rs. 2,42,350 (full invoice value), not on Rs. 1,60,350 (the net cash amount).

Step 7: Invoice Disclosure Line

> "Old gold of 10 grams (22-carat) valued at Rs. 8,200/gram = Rs. 82,000 adjusted against invoice. GST computed on full invoice value of Rs. 2,42,350."

Since the invoice exceeds Rs. 2 lakh, the jeweller must also obtain Priya's PAN and quote it on the invoice — a requirement under the Income Tax Act (Section 139A read with Rule 114B) that is separate from GST but often confused with it.

Common Mistakes and How to Fix Them

Mistake 1: Charging GST Only on the Net Exchange Amount

What goes wrong: Jeweller charges GST on Rs. 1,60,350 instead of Rs. 2,42,350, under-reporting GST by Rs. 2,572 (approximately 3% × Rs. 82,000 + 5% portion). Across hundreds of exchange transactions a month, this becomes a material GST short-payment.

Fix: Reconfigure your billing software so that the GST base field pulls from gross jewellery value, not the cash-settlement field.

Mistake 2: Using the Wrong HSN Code

What goes wrong: A jeweller classifies all gold sales under HSN 7108 (raw gold) instead of 7113 (jewellery). GSTR-1 HSN summary then shows large quantities of raw gold sold at retail — a mismatch that triggers an ASMT-10 notice asking why a retailer is selling commodity gold in unit quantities.

Fix: Map your item master in your billing software to the correct 6-digit HSN at setup. Run a monthly check of your Table 12 HSN summary before filing GSTR-1.

Mistake 3: Not Maintaining the Rule 56 Stock Register

What goes wrong: The stock register tracks pieces but not grammage or purity. During a GST audit, the officer cannot reconcile 1 kg of gold purchased with 40 pieces sold, because he does not know the weight per piece.

Fix: Capture weight in grams and purity (916/22-carat, 750/18-carat) for every line item in both purchase and sale ledgers. Many jewellery-specific ERP systems (Gem+ GST, Marg ERP, etc.) have a grammage field — activate and populate it.

Mistake 4: Applying RCM on Every Old Gold Purchase

What goes wrong: The jeweller's accountant, reading old guidance, computes RCM on all old gold purchased, including from private individuals, and deposits excess tax.

Fix: Segregate old gold purchase vouchers by source. For private individuals with a written declaration of personal jewellery, no RCM applies. For unregistered traders or businesses, verify current CBIC notifications before applying RCM.

Mistake 5: Claiming ITC on Showroom Renovation

What goes wrong: A jeweller opens a new showroom, spends Rs. 30 lakh on interior fit-out, claims ITC on the 18% GST paid, and nets Rs. 5.4 lakh in ITC. Section 17(5)(d) specifically blocks ITC on works contract services for construction of immovable property where the immovable property is not a plant or machinery.

Fix: Expense showroom renovation costs as a blocked ITC item. Ensure your GSTR-3B Table 4(D) reflects this correctly. Claiming blocked ITC is an interest-bearing reversal if caught — and reversal plus interest at 18% per annum makes it far more expensive than the original credit claimed.

Mistake 6: Missing E-Invoice for B2B Sales

What goes wrong: A jeweller sells to a registered wholesaler or corporate buyer without generating an IRN, because front-office staff do not know the customer is registered.

Fix: Train your billing counter to ask for GSTIN at the start of every transaction above a threshold (Rs. 25,000 is a practical trigger). If a GSTIN is provided, your billing software must automatically route the invoice through the IRP before printing.

Key Takeaways

• 3% on gold metal value, 5% on making charges — bill both lines separately on every invoice; do not collapse them into a single composite rate
• Old gold exchange does not reduce your GST base — charge GST on the full gross invoice value and disclose the exchange as a payment offset
• Private individuals selling personal jewellery are not making a taxable supply — document this clearly to avoid unnecessary RCM deposits
• HSN 7113 is correct for finished gold jewellery — not 7108, which is for raw/unwrought gold; wrong HSN codes attract scrutiny notices even when the rate is identical
• Rule 56 stock register must capture grammage and purity, not just piece counts — this is your first line of defence in any GST audit
• Showroom renovation ITC is blocked under Section 17(5) — do not claim it; reversal with 18% interest costs more than the credit saved
• E-invoicing applies to B2B supplies once you cross the threshold — if your turnover exceeds Rs. 5 crore (or the current notified limit), every B2B invoice needs an IRN before it is legally valid