Under the GST system, the diamond jewellery industry is negatively impacted by an inverted duty structure. As a consequence, the 47th meeting of the GST Council resolved to increase the Tax on diamond cutting and polishing from 0.25% to 1.5%, starting on July 18, 2022. This will stop the diamond jewellery industry's input tax credit (ITC) buildup problem.
We go into further detail on the current status of the GST on diamond and diamond jewellery in light of the modifications by the GST Council below.
Given that this business is subject to multiple GST tax slabs, it might be a little challenging to determine whether GST applies to diamonds and diamond jewellery. Let's clarify the GST charge on diamond jewellery.
The GST rate on cut and refined diamonds was increased from 0.25% to 1.5% following the 47th GST Council meeting. The GST rate on diamonds (only cut and polished) was dropped from 3% to 0.25% as a result of an initial announcement 7/2018- Integrated Tax (Rate) dated 25th January 2018.
Moreover, a GST of 0.25% is charged on rough or sawn diamonds. Also, the gem and jewellery sector continues to be subject to a GST rate of 1.5% for job work fees and 18% for fees associated with grading, certification, and banks, among other input services.
Although cut and finished diamonds are subject to a 1.5% GST, the situation is different when these diamonds are processed to make wearable jewellery. This is due to the 3% tax and additional fees associated with diamond jewellery. These diamonds often fall under the same tax bracket as other precious or semi-precious stones.
Prior to the implementation of the GST, diamond jewellery was subject to a 1% excise duty as well as a 1–1.2% state-specific VAT. On the other hand, some states, such as Kerala, impose a 5% VAT on diamond jewellery. Diamond jewellery was also subject to an import charge of 10%.
However, the relevant rate of Tax on diamond jewellery is now 3% with the adoption of the GST regime. Moreover, a fixed GST tax of 0.25 percent applies to unfinished precious stones. The 10% import duty on diamond jewellery is still in place from previously.
Due to the idea of composite and mixed supply of commodities, the GST charge on diamonds and diamond jewellery becomes complex. Section 8 of the CGST/SGST Act states that
1. A composite supply—one that consists of at least two supplies and is recognised as the major supply—will be regarded as a supply of this principal supply as a whole.
2. A mixed supply that consists of at least two separate supplies will be charged the highest applicable GST rate for that specific supply.
The Indian government has been attempting to rationalise the GST levied on diamonds, especially as rough, cut, and finished diamonds accounted for over 66% of gem and jewellery exporting in FY 21-22. The gem and jewellery industry has been designated as a target area for export promotion. The government is on course to resolve the buildup of ITC claims on diamonds with the increase of the GST on gems to 1.5%.
A jeweller is not required to pay any Tax on diamond jewellery when buying an old customer's jewellery. The rationale is that the business will not be furthered by this acquisition. As a result, under the reverse charge method provided for in Section 9(4), the jeweller will not be required to pay any GST on diamond jewellery.
Nonetheless, the jeweller is required to pay GST on the whole sales amount if they buy worn jewellery from a recognized individual and sell it. But in this instance, he is eligible to submit an ITC claim for his supply of used jewellery.
A diamond jeweller selling jewellery worth Rs. 5 lakh will be charged 3% GST on the total sum of Rs. 5.5 lakh if the production costs are Rs. Here, the diamond jewellery would be regarded as the major supply, regardless of whether manufacturing charges are being paid separately.
As previously stated, used jewellery is exempt from the Tax. As a result, even if a consumer replaces old jewellery for newer, he will still be charged the full amount of GST on the new jewellery.