Buying gold from jewellers? Understand the making charges first

Gold buying is a part of everyone’s shopping calendar in India. It almost is an annual tradition in the country. This is the reason why people are often acquainted with jewellers and learn a lot about gold products while shopping. Making charges are a substantial component of the gold jewellery’s price. Let’s first understand the creation process of gold jewellery to better comprehend making charges and the final gold prices:

Understanding Gold Jewellery

Pure gold is one of the most malleable and ductile metals on the planet. To make jewellery out of pure gold for commercial usage is not possible because it will bend due to its softness. So other metals such as bronze, nickel, zinc, copper, cadmium and silver are added to pure gold to make its jewellery durable and strong. Thus, the jewellery you buy in the market is a mix of gold and another metal, i.e. an alloy. The presence of gold in a jewellery piece is measured in terms of Carat (C). Some jewellers and private financial institutions in India also refer to Carat as Karat (K) however BIS (Bureau of Indian Standards) measures gold in a jewellery piece in the units of Carats only. Also note that gold price changes daily in the country so you may search for gold rate today in India on various public platforms such as newspapers, news channels, stock exchanges and internet websites to know the exact gold rate daily.

A 24C gold piece is 24 parts gold, thus 1 Carat is 1 part gold in 24 parts whole. To know the fineness grade and purity of a jewellery sample, you can refer to the below listed figures:

If jewellery’s purity is 999 (99.9%) then it is 24 Carat – Pure Gold; If jewellery’s purity is 958 (95.8%) then it is 23 Carat gold; If jewellery’s purity is 916 (91.6%) then it is 22 Carat gold; if jewellery’s purity is 875 (87.5%) then it is 21 Carat gold; if jewellery’s purity is 750 (75%) then it is 18 Carat gold; if jewellery’s purity is 708 (70.8%) then it is 17 Carat gold; if jewellery’s purity is 585 (58.5%) then it is 14 Carat gold; if jewellery’s purity is 417 (41.7%) then it is 10 Carat gold, if jewellery’s purity is 375 (37.5%) then its 9 Carat gold and if jewellery’s purity is 333 (33.3%) then it is 8 Carat gold.

As is clear from the aforementioned figures, a jewellery piece with gold proportion below 99.95%, i.e. 999 purity is graded with a lower Carat number than 24. One of the biggest segment of retailed gold jewellery in India is the 22C (22 Carat) jewellery i.e. a piece of alloy which has 22/24 parts gold and rest part other metals or one which has 91.6% purity. Please note that the purity of gold jewellery in India is measured by the Bureau of Indian Standards (BIS). Also gold jewellery prices are different in different states and cities of the country too, i.e. Gold rate in Kerala state or a city in Kerala like Thiruvananthapuram or gold rate in Chennai and its state Tamil Nadu are different from each other majorly because of different jewellers’ associations.

Understanding Making Charges

So as now you understand that making gold jewellery requires amalgamation of gold with other metals, you now know what jewellers are really talking about when quoting making charges – they are asking for the cost of mixing gold with other metals to make the jewellery piece. In addition to this, making charges also consist of jewellery designing charges. Making charges are in effect, the cost of converting raw gold into the jewellery piece you want to buy.

Earlier making charges were decided on labour costs of the corresponding market, i.e. per gram cost. For example, jewellers may quote to you that their Making Charge is Rs. 20 per gram of gold. However recently jewellers have migrated to the practice of pricing making charges based on that day’s gold’s market rate. Some jewellers may ask for as high as 40% of the gold price as making charges.

Conclusively, while quoting making charges jewellers may either formulate making charges by using the day’s gold market rate basis or quote you per gram price. In the latter option, making charges may range from INR 50 per gram to as high as INR 500 per gram depending on the brand value of the jewellery designer and the jewellery retailer.

Also note that in the GST regime, the tax levied on the gold jewellery making charges has been fixed at 5% so you will have to pay separate tax on this service.

Making charges also has a partner-in-crime, it’s called Wastage Charges. Gold jewellery-making processes earlier required the goldsmiths to melt gold and then cut it and shape it as per the desired design. This resulted in wastage of gold during making, hence the term ‘Wastage Charges’.

However since technological advancement, experts believe that gold wastage doesn’t happen at all and that whatever gold is lost in the process of making the jewellery is retrieved through advanced machinery. Thus, there is a general consensus among consumers that these gold wastage charges be nulled or brought under some kind of governmental regulation.

Even with making charges, consumers believe that they should not be charged as a percentage of the gold jewellery’s market price. You may be wondering why? This is because a gold jewellery piece’s price changes with the daily gold market rate. So if gold jewellery making charges are a percentage of the daily gold market rate then you will be paying a lot more than the jewellery’s actual making charges.  This is because the jewellery was actually created days or even months before you came into the shop to buy it and earlier then, gold was of lesser value.

Also, jewellers buy raw gold in bulk which is obviously available at a lesser cost than the per gram retail rate at which they sell the gold to you. Also since they bought the gold, the gold price must have only increased till the day you came in since that is how gold market has been since ages.

Wastage charges can range from 3% to 24% of the gold jewellery you are out to buy. Please note that by negotiating and bargaining on the making charges and the wastage charges you can save a lot of money on the gold jewellery. Also note that if you plan to get customized jewellery made then the making charges would be exorbitant as that will require the jeweller to go through the customized process of making and wasting gold as per your desired design.

A Side Note: Jewellers also may offer you jewellery cleaning or polishing service or even offer you free cleaning or polishing when you are out to buy new jewellery. However be judicious in taking up this offer as the piece of jewellery may weigh a fraction of a gram or two less after cleaning. This lost gold can be extracted from the solution in which the gold is cleaned and thus the jeweller is benefitted through this process.

Final Price of the Gold Jewellery

As mentioned in the article, making charges and wastage charges are huge contributors in the final price of the gold jewellery. Let’s understand this through an example:

Option A: If Wastage charges are billed as a percentage:

Jewellery price = Price of Gold per gram X Weight of Gold in grams + Jeweller’s Making charges + Jeweller’s Wastage charges + Applicable taxes.

Let’s understand this calculation through an example: If you want to buy 15 grams of 18 Carat Gold and the price of 18 Carat Gold listed by the jeweller that day is Rupees 20,000 per 10 grams and the jeweller’s making charges are 15% and wastage charges are 10% then the final jewellery price will be calculated as below:

Price of 15 grams of 18 Carat Gold = Rs. 20,000

Price of 1 gram of 18 Carat Gold = Rs. 20,000/10 = Rs. 2,000

Price of 15 grams of 18 Carat Gold you want to buy = Rs. 2,000 * 15 = Rs. 30,000

Making charges on the jewellery item = 15% of Rs. 30,000 = Rs. 4,500

Wastage charges on the jewellery item = 10% of Rs. 30,000 = Rs. 3,000

So, the total price of jewellery excluding tax = Rs. 30,000 + Rs. 4,500 + Rs. 3,000 = Rs. 37,500

Option B: If Wastage charges are billed in grams:

Jewellery price = Price of Gold per gram X (Weight of Gold + Wastage) in grams + Jeweller’s Making charges + Applicable taxes.

Let’s understand this calculation through an example: If you want to buy 15 grams of 18 Carat Gold and the price of 18 Carat Gold listed by the jeweller that day is Rupees 20,000 per 10 grams and the jeweller’s making charges are 15% then the final jewellery price will be calculated as below:

Price of 15 grams of 18 Carat Gold = Rs. 20,000

Wastage in making this 15 grams of 18 Carat Gold = 0.2 grams. Thus, total gold weight you have got to pay for = 15.2 grams

Price of 1 gram of 18 Carat Gold = Rs. 20,000/10 = Rs. 2,000

Price of 15.2 grams of 18 Carat Gold you want to buy = Rs. 2,000 * 15.2 = Rs. 30,400

Making charges on the jewellery item = 15% of Rs. 30,400 = Rs. 4,560

So, the total price of jewellery excluding tax = Rs. 30,400 + Rs. 4,560 = Rs. 34,960

Please note that GST on making charges is 5%. Plus you will have to pay 3% GST on gold and 10% Customs duty.

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