How Jewelers Calculate the Price of Gold Jewelry you buy?

by Elearnmarkets on
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Buying gold is like a separate festival in our country. We dedicate a lot of time to buy jewelry. We even have a family jeweler; if not, we at least have a favorite jeweler for sure. And to that jeweler we throng when we need to buy gold. However, have you ever wondered why the price of a gold ornament differs from one jeweler to another and how jeweler decides the prices of the gold ornaments he is selling to you? If yes, then read on-

Gold rates differ not only between states but between cities too. Every city has its own jewelers’ association which decides the gold rate in each town of the city. The final price of the jewelry is based upon the below formula:

Jewelry price = Price of (24 Karat or 22 Karat or 18 Karat) Gold per gram X Weight of Gold to be bought in grams + Jeweler’s Making charges + GST at 3% on (Price of jewelry + making charges).

Let’s understand this calculation through an example: If you want to buy 12 grams of 22 Karat Gold and the price of 22 Karat Gold listed by the jeweler that day is Rupees 30,000 per 10 grams and the jeweler’s making charges are 15%, then the final jewelry price will be calculated as below:

Price of 10 grams of 22 Karat Gold = Rs. 30,000

Price of 1 gram of 22 Karat Gold = Rs. 30,000/10 = Rs. 3,000

Price of 12 grams of 22 Karat Gold you want to buy = Rs. 3,000 * 12 = Rs. 36,000

Making charges on the jewelry item = 15% of Rs. 36,000 = Rs. 5,400

So, the total price of jewelry excluding tax = Rs. 36,000 + Rs. 5,400 = Rs. 41,400

GST @ 3% on the total price of jewelry = 3% of Rs. 41,400 = Rs. 1,242

So, final price of jewelry = Rs. 41,400 + Rs. 1,242 = Rs. 42,642

Furthermore, if you want to delve deeper into the costing intricacies of the Indian gold market, below factors can help you understand what really affects the prices of gold in our country:

• National and International Supply and Demand: Gold as a commodity is valued the world over and its price is a critical part of an economy’s inner workings. Thus, the supply and demand of gold should be well-managed through gold reserves of all importing and exporting countries so that gold prices don’t go haywire. Supply and demand control of gold is done by big reserves and central banks such as the US Federal Reserve, the Reserve Bank of India etc. These organizations bring- in/withdraw bond buying schemes in the market/from the market to balance the supply and demand.
• Import Duty: India currently depends a lot on gold imports to fulfill its gold demand. This is why import duties are crucial as gold gets costlier if the government decides to increase import taxes and vice-versa. Also, since we import most of our gold it is important that we maintain good relationship with our gold supplying nations. If that won’t be the case, gold prices are bound to fluctuate abnormally.
• United States Dollar (\$): Since US \$ is preferred the world over while trading, India buys its gold in US Dollars and so if Indian Rupee weakens against US Dollar then the gold prices in India are expected to rise.
• Other Factors: State taxes and duties also impact gold prices. Taking the international price of the gold as a base, addition of import duty, excise duty and other applicable taxes happen and then an organization of bullion sellers decide at which rate the gold will be given to retailers which makes the gold price volatile and subject to change even twice in one day.

Types of Gold

Gold in an alloy material is measured in terms of Karat (K). A Karat is a degree of purity when referring to gold. 24 karat (24K) gold is considered pure gold and so One (1) Karat is equal to 1/24 of pure gold. The percentage of gold in pure gold (24K) is typically 99.95%. Any alloy with gold proportion below 99.95% is graded with a lower karat number than 24.

For commercial purposes, gold is mixed with other metal(s) to create alloys so that it gains tensile strength as gold is one of the softest metals on the planet. Since a karat is 1/24 part of pure gold, a 24-karat gold material is pure gold and so 22 karat gold is 22/24 part gold and rest part other metals.

Bronze, nickel, zinc, copper and silver are among the metals mixed with gold to produce an alloy. Gold which is mixed with copper is usually considered 18K gold or less. It has a reddish color. On similar lines, 18 K gold has 18/24 parts of gold in it and rest part other metals. Do get the gold checked for its purity before buying or buy hallmarked gold which carries a certificate from a certified centre of the Indian Government.

Taxes on Gold

The taxes on gold in our country include excises, duties and levies such as Wealth Tax, Capital Gains Tax, Value Added Tax, Excise Duty, Custom Duty and other applicable taxes. Wealth tax comes into picture when the value of the gold you own has crossed the worth of Rs. 30 lakhs.

Also, if you sell gold and earn profit from it then you are liable to pay Capital Gains Tax on the profit too. Capital Gains Tax is of two types. One is Short Term Capital Gains Tax and the other is Long Term Capital Gains Tax. You are liable to pay the Short Term Capital Gains Tax if you sell the gold before 3 years of purchase; this tax is paid in accordance with the tax slab of the seller. On the other hand, you have to pay the Long Term Capital Gains Tax on gold if you are selling the gold after owning it for a period of more than 3 years. Moreover, you are also liable to pay Capital Gains Tax if you sell your Gold ETFs (Exchange-Traded Funds).

Taxes can be raised by the government too to curb excessive consumption of gold so as to prevent U.S. Dollar outflow from the country. Moreover, if the gold rates decline across the country, the government is likely to curb gold consumption through application of taxes and duties.

In the pre-GST era, gold jewelry had 1% Excise Duty, 1.5% VAT, 10% Customs Duty and 5% tax on processing charges (which in turn came to be approx. 12% of the gold rate). This made the cumulative tax on gold at about 12.4% in the pre-GST era.

However, after Goods and Services Tax (GST), the tax on gold items such as jewelry has become 3% bringing in the cumulative tax under the GST regime on gold to approximately 14%. This means that under the GST regime, the tax on gold is higher than what it used to be in the pre-GST era.

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