New tax regime to hit 40% of India's jewellery sales

Around 40 per cent of India’s jewellery sales are likely to get affected with the implementation of tax collection at source (TCS) effective June 1 along with requirement to submit Permanent Account Number (PAN). Earlier this year, the government had levied a one per cent of TCS on cash transaction worth Rs 2 lakh and above in all financial instruments including luxury items such as jewellery, to curb black money from the system.

The guidelines include part-payment of the entire transaction as cash. This means, if a customer buys precious ornaments worth Rs 5 lakh and pays Rs 4.5 lakh through cheque and Rs 50,000 by cash, he would have to pay one per cent TCS on the entire transaction. TCS is also levied on jewellery and bullion sales of Rs 2 lakh and above.

Feeling the heat, jewellers have almost stopped stocking high-end jewellery worth Rs 2 lakh and above with gold content of 70-80 grams. Sale of such ornaments would be executed only through advance orders. In case of diamond jewellery, the sale of ornaments with gold content of 20-30 grams would be difficult. Customised niche jewellery such as Jadau, Awadhi etc would face huge problems to find buyers.

“TCS alone would reduce the entire segment of business with jewellery worth Rs 2 lakh. This segment consists of nearly 40 per cent of the entire jewellery sales, which would get affected badly,” said a senior official with the India Bullion and Jewellers Association.

The worst part of the TCS is the fear, which the government has tried to create among jewellery buyers.  The government has directed jewellers and bullion dealers to pay TCS on a monthly basis and compile the data base along with the PAN of customers who buy jewellery worth Rs 2 lakh and above. This data base is to be submitted to tax authorities on an annual basis. “Jewellers’ sales volume would be impacted badly on switching of customers to light-weight jewellery to avoid tax glare,” said Mehul Choksi, managing director of Gitanjali Gems, for which jewellery worth Rs 2 lakh and above constitutes 30 per cent of its total sales.

“Sentiment is very weak for the entire jewellery sector with so much of negative publicity. With this new levy, customers would think twice before buying jewellery worth Rs 2 lakh,” said Dilip Lagu, director, Lagu Bandhu Jewellers.

According to World Gold Council (WGC), India’s gold demand declined 39 per cent to 116.5 tonnes during the January-March 2016 quarter against 191.7 tonnes in the year-ago period.

“The industry is facing challenging times; a vision detailing its future role in the economy and a stable policy framework is needed to allow this entrepreneur-driven, employment-intensive industry to channel its energies towards higher value creation,” said Somasundaram P R, managing director (India) at WGC. 

Source: http://www.business-standard.com/article/markets/new-tax-regime-to-hit-40-of-india-s-jewellery-sales-116052000956_1.html