“I bought Digital Gold worth 5000 but I only got Digital Gold Worth 4850, Why?”
“I am buying Digital Gold, so why am I being charged for GST?”
As a Digital Gold Investor and Enthusiast, you might have wondered about the chargeability of GST on Gold. Questions like the ones quoted above might have occurred to you as well. In this comprehensive article, we cover various concepts related to GST on Digital Gold.
What is GST on Digital Gold?
Transactions related to Digital Gold attract 3% of the total value of the transactions. This means that if you buy Digital Gold worth 5000 then you would be charged 150 for GST. Why 3% you ask?
Well, the Act clearly states that a flat 3% rate should be charged instead of the 5% that is charged on Gold Jewellery(specifically making charges). This relaxation of 2 percent, is given by the Indirect Tax authorities because of the nature of the transactions. Since there is no value addition in Digital gold, therefore there is no need to charge higher taxes as well. Digital Gold is a mere representation of a Pure Physical Bullion, it is not a representation of heavily crafted and designed jewellery.
Now let us understand why GST is important!!!
To understand the importance of GST, we first have to understand the Grey Market.
Gold has a huge history of being used as a tool for money laundering. From the famous ‘Cali Cartel’ to other Notorious Crime Families, Gold has for long been used as a “shell” to launder black money. Not only by the mafia and organised crime families but is also used by corrupt politicians, white-collar scammers, Ponzi-scheme creators(These people tate take law for joke) , and many other people.
Since their money is black they can’t move it freely. They can’t buy and sell gold from the legal market as we retailers do. To offset huge cash balances from their books, they buy gold from the grey market.

Grey Market? Grey Market? What the hell is Grey Market?
The Grey market is a market that is not illegal but is not legal either. It is one of those things which exists in our world because of loopholes in the legal system.
Just like in the securities market, whenever a company launches an IPO. Most dealing already happens in the backend of this market. Employees sell their stock, they transfer them, and dealers buy and sell them at what we call a premium. The entire game in the grey market revolves around this premium.
Such is the case for Gold also. The Gold which is exchanged and transferred beyond the legal market is called a grey market transaction. The benefit of this market to tax evaders is that they are able to buy and sell gold without any receipt. They don’t need to pay taxes, they can easily route their illicit profits through grey market dealings.
Understanding Premium?
In the Grey Market, only the “Premium” matters, such that the dealers only quote the premium prices in their conversations.
For example, if gold is trading at ₹5000 per gram and the grey market rate is ₹6250 then they will just talk in terms of premium. The buyer will say, “I am in for 1kg at 1250 “, and the seller to this will just say, “Yours”. These dealers just traded ₹6250000 worth of gold in a matter of seconds. All outside the law!
If you still have concerns believing about this premium thing then read this quote from the world gold council report. Which clearly states that once the premium was as high as 19000 per 10 gms.
For many, gold had become the preferred route to channel their unaccounted wealth;
GDT-FY-16
prices for these ‘grey market’ transactions were reportedly as high as Rs50,000/10g, compared with a market price of
Rs31,000/10g .
These heavy premiums act as a trigger for retailers to trade in this market. They feel that if I can sell at a much higher rate for a premium then why should I go to a registered jeweller. Why should I pay LTCG and other taxes when I can clearly evade them so easily? Right? WRONG?!!!
Grey Market Dealings are not only harmful to you but also to the country!
Impact on Country
Let me explain what exactly happens when you sell your gold in the grey market.
Let’s assume that you bought 1kg of gold in 2011 @2650. In 2022 you wish to sell the gold at @5250 which is the current market rate. Suddenly a friend of yours suggests you, “Sell in the other market buddy, Gold is trading at 12500 in the grey market right now due to this Russian-Ukraine war.”
Now you are in a dilemma because if you sell in the grey market you will earn 7250 per gram for free plus this transaction of yours will be completely off the book, which means that you would have to pay no long-term capital gain taxes, at least till the point, this discrepancy is not found by the assessing officer.
But let me tell you what the downside over here is.
But also before learning the downsides learn this. By selling your gold in the grey market, you indirectly are supporting illicit activities. You are selling the gold to tax evaders, money launderers, terror financiers, and corrupt politicians. The money which you will receive is blood money!
Downsides of Selling your Gold in the Grey Market

To you
(i) No guarantee of money:- there is no guarantee that you will receive the money. The people from whom you ought to transact in this market aren’t legit and decent. There is a possibility that they would take your gold by giving a small amount as a token and will completely go off the grid- leaving you in a chaotic position.
(ii) No redressal:- you cannot go to any legal authority saying that I sold my gold in the grey market to a money launderer and I did not receive the money from him. The authorities instead of hearing you would arrest you for all the right reasons under the various laws applicable in this case.
(iii) Increase in illicit activities:- the dark players will continue to offset their cash balances as long as retailers sell them the gold. They will continue to do illicit activities which would eventually make the world a much worse place than it is now. The world economy would have to take the hit.
To others
(iv) Revenue loss to the Genuine Dealers:- the registered dealers would be forced to close out their businesses. The business would drop down, and a domino effect will get triggered which would have an aggravating impact on the country’s economy.
(v) Revenue loss to the government:- Gold accounts for a very big revenue source for the government. The taxes linked to it is used for the development of the country. Also, if the gold is traded in the legal markets from the registered dealers then the GDP also increases. Gold in India is itself a very big market. From big bullion dealers, associations, jewelers, and retailers the number and quantum of participants in the market are humongous. Even if 5% of these black transactions were to stop, the GDP data would be phenomenal. Because Gold is a precious item, even 1% has a lot in value.
Downsides of buying your gold from the grey market
(i) No guarantee of purity:- there are no purity certificates. There is no one who can check the purity and tell you about the purity of the gold. You would be solely responsible for any impurity.
(ii)No Receipts:- all the dealings are done without bills. This means that you cannot show these purchases as an investment in the income tax returns.
(iii)No exemption from liability:- if the AO finds out that you brought some gold from unaccounted income and further sold it all from the grey market. Then, in that case, the AO can as per his discretion(reason to believe) in line with the income tax law increase your tax liability. In such cases, a penalty can also be levied by the AO.
Benefits of GST to you and the Government
There are countless benefits of GST, some of which are mentioned here.
- Creates a Link:- Goods and Service taxes create a link between all the parties to a particular transaction. This creates and establishes accountability.
- No scope of fraud:- if the GST is levied on a particular transaction then the chances of fraud reduces to none.
- Proof of Purchase:- An addition of GST in the Bill and Invoices makes the document legal. Any buying or selling of gold and silver without GST in it is illicit. Buyers should always check for such things. If you ever come across a bill with no GST in it, then you should approach the concerned authorities to safeguard yourselves from fraud. Curbs Tax Evasion:- Gold and Silver for long have been used for the evasion of taxes, and the introduction of GST cuts down such activities. Since the complete transactions are quoted with the GST number of the Gold provider it limits ill activities.
- Greater GDP for the country:- As explained earlier gold trading accounts for a sizeable amount of the GDP. WGC quotes the number as 1.3%. Trust me if the grey market transactions were to be included in this then in that case the contribution would have been over 2, maybe even 3%.
So instead of paying importance to self, try and enter into gold dealings only from the legal markets. This would not only help you prevent yourself from fraud. But would also help the country. Be a responsible citizen!!
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