Gold lobby cheers 3% GST but experts warn others may ask for special tax rate too

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Updated: June 05, 2017 12:16 PM

The industry has cheered the government's decision to keep the tax rate on gold under GST close to the current tax incidence. While the experts also welcome the move, they also raise concerns that it may open floodgate of demands from other sectors too.

The 3% rate of tax imposed on gold under GST is lower than the lowest slab of 5% under the new regime to be implemented from July 1. (Image: Reuters)

The GST Council has fixed the rate of tax on gold at 3%, keeping it close to the current tax incidence of about 2% on the precious metal across most states, and bringing cheer to the industry wary of a rise in tax outgo. The rate of tax imposed on gold under GST is lower than the lowest slab of 5% under the new regime to be implemented from July 1.

“There was extensive debate on gold, and between 2% and 5%, there was almost a vertical division. A consensus has been reached at 3%,” Finance Minister Arun Jaitley said yesterday. Notably, the traders’ lobby had been demanding to keep the levy on the precious metal at close to a concessional rate of 1%. Experts had earlier expressed concerns that a higher tax rate on gold will only add to the already high proportion of cash transactions on the commodity, and will increase gold smuggling with most traders choosing to evade taxation altogether.

Here’s what tax experts have to say:


  • Suresh Nair, Tax Partner, EY: Inspite of a near vertical division, the GST Council manages a consensus on rate of tax on gold at 3%. This adds on to another new tax rate under GST regime. It would be interesting to watch the trade community reaction in the transition phase given that the GST rate in most states could be higher than the overall current effective tax rate on gold.  States with higher VAT rate would be hopeful of compensation from the Centre to bridge the gap, if otherwise not taken care off.

Sensible, considerate

  • Sachin Menon, Partner and Head, Indirect Tax at KPMG in India: The GST council did a sensible job in fixing the rate of gold, silver and diamonds at 3% and rough diamonds at 0.25%. The move clearly indicates that GST Council has been considerate of the industry concerns. A higher rate would have enhanced tax evasion and smuggling.
  • Harpreet Singh, Partner, Indirect Tax, KPMG in India: The 3% GST rate for gold and gold jewellery though would result in a slight increase of about 1% additional tax, but at the same time the dealers would be able to take input tax credit, which is an upside. Overall, I think the Government has done a good job by not changing the rate drastically, as gold is a sensitive item.

Pandora’s box

  • MS Mani, Senior Director, Deloitte Haskins & Sells LLP: The decision to create a new rate category for gold, silver and diamonds at 3% indicates that the government has maintained the parity with existing tax rates; however this may open the door for other products to request special rates for their products or their coverage in the 3% slab.
  • Harpreet Singh, Partner, Indirect Tax, KPMG in India: The only downside is that the special rate for gold has created a new GST slab of 3%. This could open a floodgate of demands by various industries to say that their product is also special and perhaps therefore, deserves a new category of GST rate.

(Originally published on Sunday, June 4, 2017 on

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