GST on Diamond: Applicability, Impact, GST rate and HSN Code

The diamond jewellery industry has a problem with the tax system under GST. So, every consumer and jewellery trader must understand the rates of GST on diamond. The 56th GST Council meeting made changes to address the input tax credit (ITC) build up issues. These issues suffered by the diamond jewellery sector. There are several types of slabs and classifications in the taxation of diamonds. In this blog, you will learn about the GST rate on diamonds, diamond jewellery and more.

What is the applicability of GST on Diamond and Diamond Jewellery in India?

The applicability of GST on diamond industry falls under various GST tax slabs. The applicable GST rate on diamond jewellery also comes under various tax slabs.

Here is a detailed explanation:

The GST rate on cut and polished diamonds increased from 0.25% to 1.5% after the 47th GST Council meeting. This change is made on the basis of an initial notification 7/2018- Integrated Tax (Rate). This is effective from the date of 25th January 2018. It states that the GST rate on diamonds (only cut and polished) was reduced from 3% to 0.25%.

Additionally, rough or sawn diamonds attracts a 0.25% GST. The gems and jewellery industry has a 1.5% GST rate for job work charges. The industry attracts an 18% GST rate for grading, certification, and bank charges, among other input services.

Cut and polished diamonds have a 1.5% GST rate, but this changes happen when they are made into jewellery. It happens because diamond jewellery has a GST rate of 3% and includes work fees. These diamonds belongs with other valuable or semi-valuable stones that have different GST rates.

Impact of GST on Diamond Jewellery

A diamond jewellery has an excise duty of 1% and VAT (Value Added Tax) before the implementation of GST. VAT varied across the states and ranges from 1% to 1.2%. Some states such as kerala attracts a 5% VAT on diamond jewellery. A 10% of import duty applies to diamond jewellery.

Once the GST is implemented, the applicable rate of GST on diamond jewellery has a rate of 3%. Moreover, unfinished precious stones has a 0.25% GST rate. The 10% import duty rate on diamond jewellery remains unchanged from before.

Below is the table outlines the impact of GST on jewellery by considering a diamond piece that costs Rs.1, 00,000:

In the above table, you will notice that the price has come down with GST. It is due to the extra tax on tax has been removed.

What is the GST Rate and HSN code for Diamonds?

Below is the table that outlines the GST rate and HSN code for diamonds:

The job work done for making diamond jewellery comes under Heading 9988. This heading specifies "Manufacturing services on physical inputs (goods) owned by others".

Here is the table outlines the SAC code and GST Rate on Diamonds:

How to Calculate GST on Diamond Jewellery?

The GST on diamonds and diamond jewellery is complex. It is due to the concept of composite and mixed supply of goods. According to the section 8 of the CGST or SGST Act,

a) A composite supply has at least two supplies, with one supply being the main supply. So, it is considered a supply of this principal supply.

b) A mixed supply consists of at least two supplies. This will attract a GST of that specific supply that have a highest tax rate.

Here is an overview to calculate GST on diamond jewellery:

You must apply 3% GST rate on the total invoice value. It includes the diamond's cost, precious metal value (like gold or platinum), and making charges. In contrast, a loose polished diamonds has a GST rate of 1.5%. There is a newer and simpler structure where some items may have a 3% rate on value. There is an extra 5% charge for making items, but the usual rule for diamond jewelry is a 3% charge on the total price.

Place of Supply

According to the Section 10 of the IGST Act, 2017, the place of supply for jewellery and gems, including diamond jewellery, are delivered. The place of supply is the location where the jewellery is sent for delivery to the recipients. However, a business sells jewellery in its store is called an intra-state supply. This will charge CGST and SGST. In contrast, the inter-state movement of diamonds jewellery and diamonds has an IGST.

According to GST Circular No. 27/2019, the date effective from 28th June 2019. It specifies the location for services performed on imported unpolished diamonds later exported comes under Section 13(2) of the IGST Act, 2017. They need to meet a requirement after further processing. It includes, cutting and polishing of diamonds. These diamonds must be put to any use in India. Thus, the place of supply served as location of the final recipient when such an address exists on records. If not, it will be the place where the supplier is located.

Time of Supply

In case of the gems and diamond jewellery, GST will be payable. It is either when the jeweler gets the final payment or when they deliver the jewellery. In it, whichever happens first.

E-way Bills

Recently, E-way bills are required for transportation of precious stones, diamonds, and jewellery falling under HSN Chapter 71, except in cases exempted under Rule 138(14) of CGST Rules.

The National Informatics Centre (NIC) recently updated the e-way bill generation portal. This important update was released due to the new rules from the 47th GST Council meeting. The e-way bills must be generated for transporting precious stones. It includes gold (falling under HSN 71) and gold jewellery.

E-invoicing           

The 35th GST Council suggested using an e-invoicing system for some registered taxpayers. Those taxpayers has an annual turnover more than a certain amount each year. It is expected that soon, e-invoicing will be used by businesses making Rs. 5 crore a year.

ITC Availability on Diamonds

A jeweller can get an input tax credit (ITC) on all purchases to run their business. They can also claim it for accepting the goods and services that is disallowed under Section 17(5) of the CGST Act. An ITC will also be claimed for services from an unregistered job worker under the reverse charge mechanism.

As per a media report effective from 30th June 2022, the diamond industry’s tax system has led to more than Rs.600 crores in ITC claims. Section 54(3) of the CGST Act does allow refund of un-utilized ITC in prescribed situations (e.g., zero-rated supplies without payment of tax, or accumulation due to an inverted duty structure), but there are explicit exceptions (no refund where exported goods are subject to export duty, or where drawback is availed or refund of IGST was claimed). It happens due to the section 54(3) of the CGST Act, 2017. It states that you cannot get a refund for the ITC build up from input services used for domestic transactions that end in exports.

The GST Council decided to lower the GST rate on cut and polished diamonds to 1.5%. Cut and polished diamonds make up over 62% rate of Indian gems and jewellery exports in FY 21-22. This policy will probably stop more ITC from building up while freeing up blocked money and supports industry growth.

Advance Rulings Related to GST on Diamonds

Here is a detailed explanation:

a) Advance Ruling No. KAR ADRG 35 / 2021, 9th July 2021

Facts of the case

M/s Aadhya Gold Private Limited is the applicant who buys and sells the second-hand jewellery. It only cleans and polishes this jewellery without processing it and does not claim any ITC.

Ruling

The Authority on Advance Rulings (AAR) of Karnataka held that under Rule 32(5) of the CGST Rules, 2017, the applicant is liable to pay GST. It is for difference between the buying and selling price of second-hand jewellery. This rule applies as per the rule 32(5) of CGST Rules, 2017.

b) Advance Ruling No. KAR ADRG 16 / 2018, 27th July 2018

Facts of the case: The applicant, M/s Rajarathnam’s Jewels, is a partnership company engaged in the retail business of gold and jewellery. The applicant sought an advance ruling on whether the deposit of diamonds in safe vaults accepted by Electronic Vault Receipts (EVR) will be treated as a supply under the GST regime.

Facts of the case

M/s Rajarathnam’s Jewels, is a partnership Company. It deals with the retail business of gold and jewellery. The applicant asked for a decision on whether depositing of diamonds in a safe vault. This is accepted by Electronic Vault Receipts (EVR). This will considered a supply under the GST rules.

Ruling

The Karnataka AAR decided that a mere deposit of diamonds for changing to EVR does not count as supply of diamonds for GST.

Conclusion

The implementation of GST on diamond has streamlined the Industry. The gems and jewelley sector considered a focus area for export promotion. The Indian government is working to make the GST rate on diamonds simpler. In the year 2021-2022, rough, cut, and polished diamonds made up more than 66% of the gems and jewellery exports. The government plans to fix the buildup of tax claims on diamonds by raising the GST on them to 1.5%.

FAQ

Q1. What is the applicable rate of GST on Diamonds in India?

The rough or sawn GST rate on diamonds attracts to 0.25%. Cut and polished diamonds has a 1.5% GST rate.

Q2. How does the GST rate increase affect the diamond jewellery industry?

The increase in GST rate makes it more costly of production costs for manufacturers. It results in higher prices for consumers. They can identify the issue of input tax credit accumulation that improves the improving cash flow for businesses. Thus, the higher tax rate could impact the profits and competitiveness of Indian diamond jewelry in global markets.

Q3. Is GST applicable to all types of diamond transactions?

Yes, GST is applicable to all types of diamond transactions.

Disclaimer

This article is for informational purposes only and does not constitute legal advice. Online Legal India is a digital platform. If you require legal assistance, we strongly recommend consulting a qualified lawyer or law firm.