The Purity Test and Its Impact
The first step a jeweller takes is to determine the purity of your old gold. Jewellery is rarely made from 24-karat (99.9% pure) gold because it's too soft. Most Indian jewellery is 22K (91.6% gold) or 18K (75% gold). The jeweller will use a spectrometer
or XRF machine to verify the exact purity. The value of your old gold is based on the current market rate for its specific purity, not the 24K rate. For instance, the value of 10 grams of 22K gold will be calculated based on the day's 22K gold price. A BIS hallmark on your old jewellery can speed up this process and adds credibility to its stated purity.
Melting and Refining Charges
Once purity is assessed, many jewellers will melt the old ornament to remove impurities and accurately weigh the gold. This is especially common for non-hallmarked or intricate pieces. They often levy a deduction for this process, sometimes called melting charges, refining charges, or simply an impurity deduction. This fee can range from 1% to 3% of the gold's total value and is meant to cover the cost of turning your old item back into pure, usable gold. Always ask for this charge to be stated clearly before you agree to the exchange. Some jewellers may even melt the gold right in front of you for transparency.
The Stones and Studs Deduction
If your old jewellery contains diamonds, pearls, or other gemstones, their weight will be removed from the total weight of the piece before the gold is valued. You are typically only paid for the net weight of the gold. In most cases, the jeweller will not offer any buy-back value for these stones, especially if they are semi-precious. They will simply be removed and handed back to you. This can significantly reduce the exchange value of heavily studded pieces, a detail that often surprises sellers.
Losing Old 'Making Charges' and Paying New Ones
When you first bought your jewellery, you paid 'making charges,' which cover the labour and craftsmanship involved. These charges are never recovered when you sell or exchange the piece. Furthermore, when you select new jewellery, you will have to pay new making charges on that item. These charges can be a fixed rate per gram or a percentage of the gold's value, often ranging from 3% for machine-made items to over 25% for complex, handcrafted designs. Some jewellers also add a 'wastage charge,' which accounts for gold lost during the manufacturing process and can be anywhere from 5% to 18%. This is often the area with the most room for negotiation.
How GST is Calculated
The Goods and Services Tax (GST) calculation can be confusing. When you exchange old gold for new, you are generally not charged GST on the value of the old gold you are giving back. The jeweller will deduct the value of your old gold from the price of the new piece. You will then pay GST on the remaining balance. The current GST rate is 3% on the value of the new gold and 5% on its making charges. However, many jewellers simplify this to a single 3% GST on the total final transaction value. Ensure you get a detailed invoice that clearly shows the value of the new jewellery, the credit from your old gold, and the final GST applied.
