GST or Goods and Services Tax came into effect on 1st July 2017 by subsuming the repetitive tax structure of the previous regime and bringing transparency and accountability in the taxation system.
The implementation of this new tax regime has left a considerable effect on the prices of several commodities, of which gold accrues enormous importance due to its national and international demand.
Under the new tax regime, the GST on gold was fixed at 3% with an additional 8% tax on the making charges and import duty of 10%. Later, the making charges tax was revised and reduced to 5%. As a whole, the yellow metal has become expensive by 0.75% in the post-GST era.
A primary reason that accounts for the rising gold price is 10% import duty. However, traders have managed to evade that by importing gold from countries like South Korea, with which India shares the Free Trade Agreement.
'Karat' represents the proportion of gold present in an alloy. It indicates the fineness of gold, which implies that the higher the karat, the more the purity of gold.
Gold holds an impeccable value in terms of quantifying one’s wealth as well as for investment. Thus, judging the quality and purity of gold is of utmost importance, both for buyers and for traders.
Primarily, the gold’s purity is determined through the Karat system that measures the same on a scale from 0 to 24. For instance, a 24 karats gold jewellery contains 100% gold. On the other hand, in a 14K gold jewellery, the percentage of gold is 58.33%, and the rest is other metal or alloy.
The gold purity can be measured both by percentage and parts per thousand. However, to convert the Karat into a percentage, one needs to divide the Karat number by 24 and then multiply it by 100.
Another easy way to determine gold’s purity is by checking the hallmark stamp on gold jewellery. This hallmark includes the authorised logo, date of manufacturing, carat weight or fineness of the gold in question. In several countries, including India, it is mandatory to sell gold jewellery with hallmark stamp.
Lastly, the traders generally use an electronic gold tester to measure the quality and purity of gold. It shows the result accurately within seconds.
Gold derives this value from several factors, some of which are listed below:
Gold, in its elemental form, is a relatively hefty atom. Although it is not the rarest of metals, it isn’t easy to find and extract gold in large quantities. This contributes to its high perceived value.
Gold is a highly coveted metal in a county like India. So, it generally enjoys a high demand all year round, but its supply falls short to meet that. As a result, gold prices tend to increase with time.
One of gold’s many attractive aspects is its liquidity. Gold has an active, reliable and a ready market of buyers at almost all times. As a result, it can be readily converted to cash, which makes it a highly liquid asset.
It is universally accepted as a commodity of value, especially under a free market system. Gold reserves ensure the strength and stability of the currency and eliminate the pitfalls of fiat money.
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