Personal Finance

Things to keep in mind while exchanging your old gold jewellery

Satya Sontanam | Updated on October 23, 2020 Published on October 23, 2020

Planning to exchange old gold for new this festival season? Here is all that you need to know

When purchasing gold, we often exchange our seldom-used ornaments to reduce, at least to an extent, the total spend. If you have plans to exchange your old gold for new this festival season, here are some factors you should consider before you take the plunge.

No right time

If you think you will get a better deal if you exchange your old gold (in the form of jewellery or bar) when the gold prices are high, you are mistaken. This is because the gold you are exchanging and the new gold will buy are valued at the same price, which is the prevailing market price.

Whether the gold price is at ₹4,000 per gram or ₹5,000 per gram, you can always exchange your old gold ornament for the same quantity of new gold ornament at no additional cost (except making charges and taxes).

Having said that, we usually tend to buy more gold (in weight) than what we exchange. Thus, you will be better off buying gold (with or without exchange) when gold prices are lower.

Purity check

While exchanging gold, the timing of exchange doesn’t matter much. What matter is the weight and purity of the gold you are trading off.

Jewellers use a jewellery weighing machine and an assaying machine to determine the weight and purity of the gold you offer, after removing any stones and other embellishments.

If you would want to cross-verify if these metrics are assessed correctly by the jeweller, you can do so, if you have the invoice of the gold you are exchanging .

Of course, if your old gold is hallmarked, the details of the purity of the gold would be mentioned on the item itself. Hallmarking of gold is done only for three levels of purity — 22 karat gold (22K916), 18 karat gold (18K750) and for 14 karat gold (14K585).

A pure gold bar would be of generally 24 karat purity.

N Anantha Padmanaban, Managing Director of Chenna-based NAC Jewellers, says there is no need for customers to test the purity if the gold is hallmarked and brought from a reputed gold showroom.

Say, the gold you want to exchange is not hallmarked, you can request the jeweller to display the purity test results.

GR ‘Anand’ Ananthapadmanabhan, Managing Director of GRT Jewellers, another Chennai-based player, says the gold given for exchange with his firm will be melted and tested using an XRF machine right in front of the customers, if they request for it.

Following the acceptance of terms of the weight and purity of the gold exchanged, take a moment to notice the gold rate used to value your old gold.

If the gold being exchanged is of 18 karat, but the gold being bought is of 22 karat, the applicable gold rate to value the old gold should be the gold rate for 22 karat x (18/22).

For example, if the rate charged for the 22 karat gold you are buying is ₹5,000 per gram and you are exchanging 18 karat gold, your old gold should be valued at a minimum of ₹4,090 (5,000 x 18/22).

But if you are exchanging gold of 22 karat purity, it should be valued at the same ₹5,000 per gram.

Wastage on total value

Note that while the value of exchanged gold will be deducted from the cost of your new ornament, the making and waste charges (otherwise called ‘value addition (VA)’) and taxes (SGST and CGST — each of 1.5 per cent) shall be calculated as a percentage on the original vale of the new ornament and not on the deducted value.

For instance, say the value of the gold in the old ornament exchanged and the new ornament is ₹1 lakh and ₹2 lakh respectively. Your total cash outflow would be ₹1 lakh (₹ 2 lakh – ₹ 1 lakh) plus VA of ₹20,000 (say, VA is 10 per cent-then 2 lakh x 10 per cent) plus taxes of ₹6,600 (GST of 3 per cent on new ornament value plus VA). That would be equal to ₹1,26,600.

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Published on October 23, 2020
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