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Indian jewellers routinely accept old gold jewellery in exchange against new purchases — a national retail practice worth an estimated 25 to 30 percent of urban jewellery revenue by value. The transaction structure appears simple (new price minus old trade-in equals net invoice), but the GST treatment is a two-supply construct, not a one-supply construct: the new-jewellery leg attracts 3% GST on the full value plus 5% on making charges (or 3% consolidated on composite supply), while the old-gold leg either sits outside GST (unregistered customer) or attracts Rule 32(5) margin-scheme valuation on later resale as second-hand goods. Jewellers that intuitively charge GST on the net invoice trigger undervaluation notices under Section 73/74. Compounding the confusion, retail customers and even some accountants apply Section 194-IA (TDS on immovable property) to the transaction — this is an outright misreading of the statute, since 194-IA covers only land and buildings, not jewellery.
Treat the old-gold-in and the new-jewellery-out as two separate flows on every invoice. Determine the customer's registration status: if unregistered (retail individual selling personal-use jewellery), the old-gold-in leg is not a taxable supply, no reverse-charge liability arises for the jeweller under the current suspension, and the incoming gold is inventoried at the negotiated buy-back rate. Charge GST on the new-jewellery-out leg at 3% on the gold value plus 5% on making charges (or 3% on composite supply per CBIC Circular 47/21/2018-GST), computed on the full value of the new jewellery — not on the net after trade-in. Show the trade-in credit as a below-the-tax-line adjustment to the payable amount, not as a value reduction to the taxable base. Book the incoming gold to inventory at cost; when later resold as-is, apply Rule 32(5) margin-scheme (3% on the margin between resale price and buy-back cost); when remade into new stock, treat the remade item as a new taxable supply at full transaction value. Separately track Section 206C(1F) 1% TCS on cash jewellery sales above ₹5 lakh (a seller obligation on cash consideration, not TDS on the buyer). Never invoke Section 194-IA — it does not apply to jewellery.
Two-line invoice template — Line 1 (new jewellery, HSN 7113, 3% GST on full gold value, 5% on making charges); Line 2 (trade-in credit at negotiated buy-back rate, no GST, shown as payable reduction below the tax total). Purity-assay register linked to each incoming trade-in (weight, karat, buy-back rate, customer PAN if consideration exceeds Section 269ST threshold). Inventory-flow tag on incoming gold — 'resale-as-second-hand' or 'melt-remake' — determined at intake and enforced through the manufacturing traceability chain. Rule 32(5) sub-ledger tracking margin-scheme resales separately from full-value new-jewellery sales. Section 206C(1F) TCS register on cash sales above ₹5 lakh with 1% collection posted in Form 27EQ. Section 269ST cash-receipt monitoring at ₹2 lakh threshold. Karigar labour bill reconciliation to Section 393(1) Sl. 4 (legacy 194C) TDS at code 1001 or 1023 depending on karigar constitution.
A monthly jewellery exchange reconciliation pack: opening old-gold inventory (weight, karat, cost), incoming trade-ins by customer segment (registered / unregistered), outflows split by resale-as-second-hand (Rule 32(5)) versus melt-remake (new supply at full value), and closing inventory. The new-jewellery sales register cross-foots to the GSTR-1 taxable value on HSN 7113 at 3% and the making-charges line at 5%. The Rule 32(5) sub-ledger separately reports margin-scheme value for second-hand-resale supplies. Section 206C(1F) TCS collection on cash jewellery sales above ₹5 lakh reconciles to Form 27EQ. Trade-in credits below the tax line reconcile to the customer receipt (bank / UPI / cash-with-269ST-check). No Section 194-IA line ever appears on the pack — the section does not apply.
A national jewellery retail chain closes the July trade quarter with 3,142 old-gold-exchange transactions booked across its 68 showrooms, aggregating to an incoming old-gold value of ₹47.2 crore and an outgoing new-jewellery gross value of ₹138.8 crore. The finance controller pulls the GST working and sees a familiar dispute item flagged by the internal audit team: 812 of the 3,142 invoices charged GST on the net-of-trade-in figure rather than the gross new-jewellery value — a total undercharge exposure of ₹1.13 crore across the trailing twelve months when compounded, and a potential Section 73/74 assessment risk during the annual GST audit. The controller’s next question is the operational one: how do we structure every exchange invoice from tomorrow so that Rule 32(5) valuation, the two-supply GST construct, Section 206C(1F) TCS on cash, and the Section 34 credit-note discipline all sit correctly on one document without inviting a notice — and how do we defend the position on the 812 flagged invoices in the current quarter’s return. This is old gold exchange new jewellery purchase valuation at production scale, and getting it right is the single most common gap in Indian jewellery-retail GST compliance.
Quick reference
| Aspect | Detail |
|---|---|
| Governing rule for old-gold second-hand resale | Rule 32(5), CGST Rules 2017 (margin scheme) |
| Primary valuation rule (new jewellery) | Section 15, CGST Act 2017 (transaction value) |
| GST rate — gold jewellery HSN 7113 | 3% (1.5% CGST + 1.5% SGST) |
| GST rate — making charges | 5% under Entry 26, Notification 11/2017-CTR |
| GST rate — composite supply option | 3% consolidated per CBIC Circular 47/21/2018-GST |
| Section 194-IA (immovable property TDS) | Does NOT apply — jewellery is movable property |
| Section 206C(1F) TCS trigger | 1% TCS by seller on cash jewellery sale above ₹5 lakh |
| Section 269ST cash-receipt cap | ₹2 lakh in aggregate per person per day |
| Credit-note statute (registered exchanges) | Section 34 CGST — by 30 November of following FY |
| Karigar labour TDS section | Section 393(1) Sl. 4 (legacy 194C), code 1001 / 1023 |
What the old-gold exchange actually looks like in India
The most common variant of the transaction runs like this: a retail customer walks into a Tanishq or Kalyan Jewellers showroom, brings in an old 22-karat gold necklace weighing 42 grams, and picks out a new bridal set weighing 78 grams. The store weighs the old piece on a calibrated electronic scale, runs a purity assay (either XRF or acid-touch, sometimes both for high-value pieces), announces a purity result — say 91.6% for genuine 22-karat, downgraded to 89.4% after impurity deduction for solder marks and stone settings — and calculates a buy-back rate on the day’s declared 22-karat gold rate. National chains typically buy back at 90 to 96 percent of the declared rate, with the discount covering impurity, remelting loss (usually 2 to 4 percent), and refining margin.
The new bridal set is priced separately, with two components clearly broken out: the gold value at the day’s declared rate multiplied by the piece weight and the purity, and the making charges (which vary from a flat ₹200 to ₹800 per gram for machine-made lightweight designs, up to 20 to 30 percent of the gold value for hand-crafted heritage pieces). BIS hallmarking is mandatory for all sold pieces after the Bureau of Indian Standards notified compulsory hallmarking in 2021 — the hallmark fee is a small amount per piece (currently ₹45 per article) and is included in the making cost.
The customer’s payable is a straightforward arithmetic: new jewellery gross value plus GST minus the trade-in credit. What complicates it is that the GST cannot be computed on the arithmetic net — the tax base is the full new-jewellery value, and the trade-in credit is a below-the-tax-line adjustment to the payable amount. National chains like Malabar Gold & Diamonds, Joyalukkas, Senco Gold, and Reliance Jewels have refined their point-of-sale systems over the last four to six years to enforce this two-line structure; smaller independent jewellers still get it wrong on paper invoices, which is where the 812-invoice audit gap in the opening example typically sits.
The old gold, once accepted, goes into an intake bin at the store. On a weekly or fortnightly cycle, the accumulated intake is either dispatched to the chain’s centralised refinery (where it is melted, refined to 999.9-purity bullion, and either sold as bullion or issued back to the design-and-manufacturing team as raw material for new stock), or, in rarer cases, kept as-is for resale as second-hand jewellery — which is the only path where Rule 32(5) margin-scheme valuation applies to the outgoing supply.
The Rule 32(5) CGST overlay — margin scheme, not new-supply full value
Rule 32(5) of the CGST Rules 2017 is the specific carve-out from the primary transaction-value rule in Section 15 CGST. It applies to persons dealing in buying and selling of second-hand goods, subject to two conditions: the goods are used as such or after minor processing that does not change the nature of the goods, and no input tax credit has been availed on the purchase.
For a jeweller, the first condition — “minor processing which does not change the nature of the goods” — is the trap. When an old necklace is polished, cleaned, restrung, or re-hallmarked and sold as a second-hand piece with its original design intact, Rule 32(5) applies and the jeweller charges 3% GST only on the margin between the resale price and the buy-back cost. When the same necklace is melted, refined, and recast as a new bangle set, the character of the goods has fundamentally changed — the output is a new jewellery item, not second-hand goods — and Rule 32(5) no longer applies. The new bangle set is a fresh taxable supply at 3% on the full value under Section 15 CGST.
The second condition — “no ITC availed on the purchase” — is automatic in the retail-exchange scenario because the customer is an unregistered individual and no GST was charged on the incoming leg, so there is no ITC to avail in the first place. But it becomes material when the incoming purchase is from another registered dealer (dealer-to-dealer old-gold trade), in which case ITC availability disqualifies the outgoing sale from Rule 32(5) treatment.
Where Rule 32(5) applies, the outgoing invoice must clearly show the margin (selling price minus purchase price) as the taxable value, with 3% GST computed on that margin. The purchase price attribution must be documented — typically through the intake register that records buy-back rate, weight, and karat at the time of purchase. Where the margin is negative (the jeweller sold the second-hand piece at a loss), the negative value is ignored — it is treated as zero, not as a credit that can be applied against other margin-scheme supplies.
Why Section 194-IA does not apply
The persistent misinterpretation that Section 194-IA of the Income-tax Act 1961 (mapped to Section 393(1) Sl. 21 in the Income-tax Act 2025 taxonomy) imposes TDS on jewellery purchases is worth addressing head-on because it drives customer questions and supplier queries at every large-value transaction. Section 194-IA imposes 1% TDS on the transferee (buyer) at the time of paying consideration for the transfer of certain immovable property other than agricultural land, where the consideration is ₹50 lakh or more. The statute is explicit — the section applies to land, buildings, or parts of buildings. Movable property, including gold jewellery, silverware, precious stones, coins, bullion, and any article of personal use, is entirely outside the scope of Section 194-IA.
The section that does apply to jewellery — but only in the reverse direction — is Section 206C(1F) of the Income-tax Act 1961. This provision imposes 1% TCS (tax collected at source) on the seller (the jeweller) at the time of receipt of consideration in cash for the sale of jewellery of any value exceeding ₹5 lakh (originally ₹2 lakh, revised to ₹5 lakh via subsequent amendments). Note three critical differences from 194-IA: it is TCS not TDS, the obligation is on the seller not the buyer, it triggers on cash consideration not any consideration, and the threshold is ₹5 lakh not ₹50 lakh. A jeweller receiving ₹6 lakh in cash for a jewellery sale must collect 1% TCS (₹6,000) and deposit it in Form 27EQ. The customer’s PAN is required.
Section 269ST of the Income-tax Act 1961 imposes a separate independent restriction — no person can receive ₹2 lakh or more in cash in aggregate from any person in a day, in respect of a single transaction, or in respect of transactions relating to one event or occasion. This applies to all businesses, not just jewellery, but is particularly relevant here because retail jewellery cash transactions above ₹2 lakh are common in Tier 2 and Tier 3 towns. Section 269ST violation attracts a penalty equal to the amount received in cash under Section 271DA.
A national jewellery chain’s cash-receipt discipline typically enforces all three thresholds simultaneously: reject any single cash tender above ₹2 lakh (Section 269ST), collect 1% TCS on cumulative cash sales above ₹5 lakh (Section 206C(1F)), and never invoke Section 194-IA (does not apply).
A worked example — Senco-style national chain trade-in
A leading national jewellery retailer processes an old-gold-exchange transaction at its Kolkata flagship showroom on 15 July 2026. The customer, an unregistered retail individual, brings in an old necklace and books a new bridal set. The transaction breakdown is as follows.
Illustrative — the numbers below are representative of the operating pattern, not actual chain data. Cross-verify against the current day’s declared rate and your own scheme master before action.
Incoming old gold (customer’s trade-in):
- Weight: 42 grams, declared 22-karat
- Purity after XRF assay: 91.6% (genuine 22K)
- Impurity deduction (solder + stone settings): 2.2%
- Net purity applied: 89.4%
- Day’s declared 22-karat gold rate: ₹6,850 per gram
- Buy-back rate applied by the chain: 94% of declared rate = ₹6,439 per gram
- Buy-back value: 42 × 89.4% × 6,439 = ₹2,41,741 (rounded to ₹2,41,741)
Outgoing new bridal set:
- Weight: 78 grams
- Purity: 91.6% (22-karat, hallmarked)
- Gold value at day’s declared rate: 78 × 91.6% × 6,850 = ₹4,89,353
- Making charges at 12% of gold value: ₹58,722
- BIS hallmarking fee (3 pieces × ₹45): ₹135
- New jewellery gross value: ₹5,48,210
GST computation (mixed supply — separately invoiced):
- GST on gold value at 3%: 4,89,353 × 3% = ₹14,681
- GST on making charges at 5%: 58,722 × 5% = ₹2,936
- GST on hallmarking (18% under HSN 9983): 135 × 18% = ₹24
- Total GST: ₹17,641
Customer payable:
- New jewellery gross value: ₹5,48,210
- Plus GST: ₹17,641
- Invoice total: ₹5,65,851
- Less trade-in credit (below the tax line): ₹2,41,741
- Net payable: ₹3,24,110
Critical audit points:
- The taxable value on the tax invoice is ₹5,48,210 (gross new jewellery), not ₹3,06,469 (net after trade-in). GST is ₹17,641, not ₹9,884 (which is what the net-of-trade-in error produces). Charging on the net would undercharge ₹7,757 per transaction — compounded across the 812 flagged invoices in the opening example at similar transaction sizes, this is the ₹1.13 crore exposure.
- The trade-in credit of ₹2,41,741 is a payable-reduction line placed below the GST total, not above the taxable value. This is the two-supply construct — the old-gold-in leg (not a taxable supply since the customer is unregistered) and the new-jewellery-out leg (taxable at ₹5,48,210) are separate flows even on a single invoice.
- The customer’s PAN is required if the transaction hits Section 269ST (aggregate cash tender ≥ ₹2 lakh) or Section 206C(1F) (cash consideration > ₹5 lakh). In this example, the payable of ₹3,24,110 falls between the two thresholds — if the customer pays via bank/UPI, no TCS is triggered; if paid in cash (which the chain would not accept above ₹2 lakh anyway), Section 269ST is breached first.
- Section 194-IA does not appear anywhere on this invoice. The transaction is movable property. The section does not apply.
- The incoming 42 grams of old gold is booked to inventory at the buy-back cost of ₹2,41,741, tagged ‘melt-remake’ — because the chain will dispatch it to the refinery for melt and reissue as raw material. Rule 32(5) does not apply to the future output because the remade jewellery will be a new taxable supply at full value.
Common reconciliation breakages
- Net-invoice GST error — the point-of-sale system charges GST on the arithmetic net (new value minus trade-in) rather than the gross new value, understating output GST and inviting Section 73/74 undervaluation notices.
- Wrong Rule 32(5) invocation — the jeweller melts and recasts the old gold into new stock but still applies margin-scheme valuation on the outgoing supply; the melt fundamentally changes the nature of goods, disqualifying Rule 32(5), and the full transaction value under Section 15 must apply.
- Missing purity-assay audit trail — no XRF report, no impurity deduction log, no witnessed buy-back rate acknowledgement from the customer; when a customer disputes the buy-back rate weeks later, the jeweller has nothing defensible in the audit file.
- Section 194-IA misapplication by customer — the customer’s tax advisor or the customer themselves attempts to deduct 1% TDS on a large jewellery purchase; the jeweller must refuse the reduction and provide a written note citing that 194-IA applies to immovable property only.
- Section 206C(1F) TCS oversight — a cash sale of ₹6 lakh is booked without 1% TCS collection; the jeweller’s Form 27EQ shows the gap at year-end and the tax officer treats the shortfall as a personal liability of the jeweller under Section 206C(6A).
- Section 269ST cash-tender violation — the store accepts ₹2.4 lakh in cash from a customer against a single invoice; even if TCS is collected, the ₹2 lakh cash-receipt cap is breached and the jeweller faces a 100% penalty of the amount under Section 271DA.
- Making-charges rate confusion — the making-charges line is invoiced at 3% (aligned to gold rate) rather than 5% (aligned to job-work rate under Entry 26 Notification 11/2017-CTR); or the entire supply is invoiced as composite at 3% (CBIC Circular 47/21/2018-GST route) without the internal documentation supporting the composite-supply classification. See the 3% vs 5% mixed-invoice guide for the classification test.
How a reconciliation platform handles this
An audit-defensible jewellery reconciliation platform enforces the two-supply construct at invoice generation, cross-references the point-of-sale invoice to the incoming purity-assay register, tags every intake with the resale-versus-melt flag at the point of intake, keeps a separate Rule 32(5) sub-ledger for margin-scheme second-hand resales, and cross-foots the monthly GSTR-1 taxable value on HSN 7113 to the retail sales register while surfacing outliers — invoices where GST appears to sit on the net rather than the gross, Section 206C(1F) TCS gaps on cash sales above ₹5 lakh, and Section 269ST cash-receipt breaches. The platform never generates a Section 194-IA line because the statute does not apply. The controller sees a monthly reconciliation pack with a clear provenance trail from customer receipt to inventory intake to GSTR-1 filing — the same evidence chain the GST audit officer will trace during the annual assessment.
For jewellery businesses running this at scale — where a single national chain processes tens of thousands of exchange transactions per quarter — the difference between a manual invoice-review discipline and a platform-enforced two-supply construct is the difference between reactive dispute resolution and proactive audit readiness. See the jewellery reconciliation software India money page for the full posture. Related reading on the ITC and credit-note mechanics that intersect with jewellery-sector exchanges: Rule 42 and Rule 43 ITC reversal and GSTR-2B reconciliation.
The five FAQs below address the operational questions Indian jewellery controllers and CFOs ask most often when structuring the old-gold-exchange transaction to withstand GST audit and income-tax scrutiny simultaneously.
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
- ▸ Rule 32(5), Central Goods and Services Tax Rules 2017 — Value of supply in case of a person dealing in buying and selling of second-hand goods. Where a taxable supply is provided by a person dealing in buying and selling of second-hand goods (used goods as such or after such minor processing which does not change the nature of the goods) and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and, where the value of such supply is negative, it shall be ignored.
- ▸ Section 15, Central Goods and Services Tax Act 2017 — Value of taxable supply. The primary valuation rule (transaction value) from which Rule 32(5) is a specific carve-out for second-hand-goods dealers; the margin-scheme value under Rule 32(5) overrides the transaction value only when the dealer meets the no-ITC-availed condition on the incoming purchase.
- ▸ Section 34, Central Goods and Services Tax Act 2017 — Credit and debit notes. Credit notes issued for adjusting the value of a taxable supply — including trade-in adjustments where the old-gold leg is booked as a separate supply — must be issued by 30 November following the financial year of the original supply (or before annual return filing, whichever is earlier) for GST liability reduction.
- ▸ CBIC FAQ on GST — Jewellery Sector (Circular series and Sectoral FAQ) — CBIC's sectoral FAQ on gems and jewellery clarifies that when an individual (unregistered) sells old gold jewellery to a registered jeweller, the transaction attracts GST only under the reverse-charge mechanism if applicable per Section 9(4); a routine exchange of old jewellery for new is not treated as a supply by the individual unless they are a taxable person.
- ▸ Section 194-IA, Income-tax Act 1961 (mapped to Section 393(1) Sl. 21 in the Income-tax Act 2025 taxonomy) — TDS on payment on transfer of certain immovable property other than agricultural land. 1% deduction on consideration of ₹50 lakh or more for transfer of immovable property. Movable jewellery is expressly outside scope — the section applies only to land or building or part of a building. The frequent misinterpretation that a ₹4 lakh jewellery purchase attracts 194-IA is incorrect.
- ▸ Notification 1/2017-Central Tax (Rate) — Schedule V, HSN 7113 — Articles of jewellery and parts thereof, of precious metal or of metal clad with precious metal — chargeable at 3% GST (1.5% CGST + 1.5% SGST). The rate applies to both new and second-hand gold jewellery when supplied by a registered dealer, subject to the Rule 32(5) margin-scheme value determination on the second-hand leg.