PRE BUDGET – RECOMMENDATIONS FOR THE GEMS & JEWELLERY INDUSTRY, 2023 – 2024 BY GJC

• REDUCTION IN BASIC CUSTOM DUTY OF GOLD

In 2022, the Basic Customs Duty (‘BCD’) on the import of gold is increased from 7.5% to 12.5% ad valorem. This takes the total tax incidence to 18.45% on the imported gold. This means taxation of more than Rs. 9 lac per kg. The reasons for the hike in BCD, as publicly available, seem to indicate concerns in relation to the Current Account Deficit (‘CAD’) and the impact that the import of gold has on the CAD. It has been historically and statistically proven that higher tax rates on Gold create an exponential increase in grey market transactions. Point to note here is that the grey market transactions are in the hands of the criminal elements which are harmful to the society at large. This may have long term effect on the society. The current increase in BCD on gold is therefore immediately required to be withdrawn to prevent an increase in smuggling and grey market transactions in gold. With the hike in Import Duty to 12.5%, and adding 2.5% AIDC & 3% GST, makes Gold dearer by 5.5% for the end customer. This has seriously impacted NRI business and will also impact the foreign tourist sales. This business is being shifted to neighbouring countries like Dubai, Singapore etc., In 2011 when the duty was at 1% the exports were at all-time high, now because of such increase of duty, the entire export industry has collapsed and has become unviable. On the contrary India has a potential to be “Jeweller of the world” which can create millions of jobs and foreign exchange for our country.

Recommendation: The current increase in BCD on gold from 7.5% to 12.5% should be withdrawn and a rationalized tax structure should be developed to reduce smuggling and help migrate the unorganized sector into the organized sector. An integrated and cohesive policy in relation to gold should be formulated to ensure that gold holdings in households are translated into a productive asset class which sustains the savings of all households and contributes positively to the national economy by way of effective gold monetization schemes and other related economic policies in light of the needs of the nation and inclinations of the rural household and LIG investors.

• INCREASE IN PAN CARD LIMIT
  India has always been a country which is known for its traditional and hand-made jewellery. In India gold is intertwined with the society and its social practices. In India gold has a traditional value and is also mainly looked upon as an Investment Avenue/vehicle by the society at large. People in interiors, where Agricultural economy dominates, have rituals and traditions related to pure gold and Gold Jewellery that facilitates investments and acts as insurance in times of distress Every household during the weddings gifts the gold jewellery to their children as a blessing. A mangalsutra, four pieces of bangles, a small nose pin along with rings for bride and groom weighs more than 100 gms which itself costs around 4 to 5 lakh rupees.

Recommendation: – In Rural India, many households do not hold PAN cards. Hence, they face difficulty in arranging minimum required jewellery. We recommend to raise PAN card limit from 2 lakh to 5 lakh rupees.

• GOLD MONETISATION SCHEME
  The Gold Monetisation Scheme (GMS) was introduced by the Honourable Prime Minster in 2015 to turn gold holdings into an earning asset by allowing residents to deposit physical gold- bars, coins or jewellery – into a Gold Savings Account. – the idea being to mobilise domestic gold to be channelized for productive use in the system. However, the total deposits accumulated by the banks under the GMS are 11.1 tonnes, which is a meagre number as compared to the estimated holdings of 23,000-24000 tonnes. Also, making the GMS more effective is important to address the widening current account deficit (CAD) issue. In such a scenario, it becomes imperative to understand the reason for the non-participation in the GMS. GJC, being a responsible trade body would like to emphasize upon the point that Government must clearly give exemptions to households for minimum 500 grams of gold deposited, being of ancestral nature, from questioning by any tax department. The same will make GMS more effective and benefit the government and participants at large.

There are many other suggestions to make GMS successful at the ground level like;

1. Allow flexibility of GMS tenure for Banks
2. Allow banks to give Gold Loans from the Long-Term deposits mobilized under GMS by them since Interest given to customers under Short Term Loan is very less.
3. Reduce physical movement of gold before issuing Deposit receipts.

Recommendation: –
1. Ministry of Finance may review and revamp the GMS scheme, with time bound targets that may be set through a comprehensive gold policy.
2. Encourage more branches of banks to accept gold deposits under the GMS and also to extend the GML (of gold received under the GMS).
3. Banks to engage with the state endowment departments to encourage greater participation of the religious institutions in the GMS. We suggest the formulation of a standardized process guidelines along with an automatic approval route for endowment departments or representatives of religious institutions to start depositing gold under GMS
4. Permit deposits as low as 1 gram, and multiples thereof….

• EMI FOR 22 CT. GOLD JEWELLERY

Currently, loans on purchase of jewellery is being treated as Personal Loans, where the rate of interest is very high. Purchase of 22kt gold jewellery on EMI on credit card was allowed couple of years back but is currently not allowed. In many parts of India, a father is supposed to give at least 10 guineas which is equivalent to 80 grams as a practice or as a dowry to his daughter. Presently, 80 grams of gold would cost around Rs. 4.5 lakh and in today’s post-pandemic situation, where people have lost their jobs, it becomes really difficult for them buy jewellery. EMI should be available for purchase of jewellery and restriction should continue only for bullion and coins. This will help the industry to move towards organized and compliant business practices. Even, the finance minister in the 2018 Budget has announced Gold as an Asset Class.

Recommendation: – We urge that the facility of EMI should be extended to the Gems & Jewellery industry which in turn shall lead to substantial growth of the business of the industry and also promote digital payments in the industry.

• CASH PURCHASE LIMIT – CHANGE IN SECTION 40A OF THE INCOME TAX ACT

Currently, the monetary limit on revenue expenditure or purchase limit in cash is Rs. 10,000 per day. A majority of the people in Rural India prefer Gold as an Investment and have their savings in the form of Gold. In case of Medical / financial emergencies they approach the jeweller to liquidate their savings or investment. But due to provisions contained in Section 40A of the Income tax Act, a jeweller is unable to make payment above Rs. 10000/- in cash. In normal situations, most of jewellers have buy back policies and the customers get higher rates when they go back to sell to those jewellery from where they would have purchased. However, because of the monetary limit of Rs 10,000/- they are compelled to go to small and unorganized jewellers and sell the jewellery at a loss. The customers or rural farmers have no choice but make a distress sale and they badly need money in times of emergency.

Recommendation: – Keeping in mind the hardships faced by the common man during such crisis, we urge that the limit of Rs. 10,000/- per day be increased to Rs. 1,00,000/- per day.

• CREDIT CARD COMMISSION LEVIED BY BANKS

The G & J (Gems and Jewellery) Industry wants to play a pivotal role in Honourable PM’s dream project ‘Digital India’. The use of non-cash transaction has been on a rise due to technological development and access to various banking facilities across the nation. However, in case of G & J sector, in retail sales to customers, Banks charges commission of approx. 1 – 2.5% whenever the credit card is swiped. This charge makes the jewellery costlier to the customer by 1 – 2.5%, hence encouraging cash transactions.

Recommendation: – We hereby suggest the government to waive off the bank commission thus ensuring a good boost to the ‘Digital India’ for the G & J Industry.

• RELIEF FROM CAPITAL GAIN TAX
  In case of remaking of new jewellery from old jewellery or old gold, GST is applicable @18% on labour charges. Due to high rate of GST, the customers are reluctant to go for this option. The other option left with customer is to sell the old jewellery and buy new jewellery. However, as there is Capital Gains Tax involved, customers are hesitant for this option also.

Recommendation: – We urge the government that in case jewellery sold is reinvested in new jewellery, the exemption from Capital Gain as per Section 54F of the Income Tax Act 1961 should be the extended to GJI. This will help the industry to move towards organized and compliant business practices.

• ASHOKA CHAKRA GOLD COINS
  The Ashoka Chakra Gold coins launched by Honourable PM is a pride to our nation. We request the Government to enable jewellers to sell these gold coins through their retail stores. This will increase the reach and generate more sales of the coins.

• COLLATERAL FREE LOAN

The majority of the Gems & Jewellery sector falls under the MSME category and availing loan has become a key concern for the jewellers, With the rise in Gold price, it is essential to increase the limit of the collateral free gold loan, which will simply help in developing the business across the nation.

Recommendation: – We urge the government to increase the collateral free gold loan for the MSME jewellers from 2 crores to 5 crores.

Regards,
GJC