A bar, a coin and a piece of jewellery are not the same thing
Rohit MenonBullion desk editorA bar, a coin and a piece of jewellery are all made of gold, but they are not the same thing. The differences are in the making charge, the premium, the tax treatment, and what a buyer can recover on the way out. The benchmark can tell you the metal value, but it cannot tell you the other costs.
On the way in: what you pay
A bar is the closest to the benchmark. It has a small premium over the metal value, and the tax is charged on the total. A coin has a higher premium, because of the cost of minting. A piece of jewellery has the highest making charge, because of the labour involved.
The benchmark is the same for all three, but the price a buyer pays is different. The difference is the premium or making charge, and the tax on that difference.
On the way out: what you get back
A bar can be sold back at close to the benchmark, minus a small margin. A coin may be sold back at a slightly lower price, because the premium is not recovered. A piece of jewellery is sold back at the metal value only, with the making charge lost entirely.
The benchmark is the reference for buy-back, but the counter's margin is not published. A buyer should ask what the buy-back price is before buying.
What the benchmark can and cannot tell you
The benchmark tells you the metal value of a given weight and purity. It cannot tell you the premium on a bar, the premium on a coin, or the making charge on a piece of jewellery. Those are separate costs, and they are not published.
A buyer who compares the benchmark to the price of a coin or a piece of jewellery is comparing a number that excludes the cost of making to a number that includes it. The difference is not a premium on gold; it is the cost of the form.
The tax treatment of the three forms
The tax is the same rate for all three forms: three per cent of the finished piece. But the finished piece includes the premium or making charge, so the tax amount is higher for a coin than for a bar, and higher for a piece of jewellery than for a coin.
A buyer should ask for the tax to be itemised, and should know that the tax is on the total, not just the metal value.
The liquidity of the three forms
A bar is the most liquid, because it is closest to the benchmark. A coin is less liquid, because the premium is not recovered. A piece of jewellery is the least liquid, because the making charge is lost and the design may affect the buy-back price.
A buyer who wants to sell quickly should consider a bar. A buyer who wants to wear the gold should consider jewellery, but should know that the making charge is lost.
The three forms in one sentence
A bar is the closest to the benchmark, a coin has a higher premium, and a piece of jewellery has the highest making charge. The benchmark tells you the metal value, but not the other costs, and those costs are lost on the way out.
Key facts
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Questions about karat and cost
What is the difference between a bar and a coin?
A bar has a small premium over the metal value, while a coin has a higher premium because of the cost of minting. Both are closer to the benchmark than jewellery, but the coin's premium is not recovered on buy-back.
Why is jewellery more expensive than a bar?
Jewellery has a making charge, which is the cost of labour and design. The making charge is not part of the benchmark, and it is lost on buy-back. The tax is also charged on the making charge.
Can I sell a coin at the same price I paid?
No. The premium on a coin is not recovered on buy-back. The buy-back price is based on the metal value, minus a margin. The premium is a sunk cost.
What should I buy if I want to sell quickly?
A bar is the most liquid, because it is closest to the benchmark. A coin is less liquid, and jewellery is the least liquid. The buy-back price is based on the metal value, minus a margin.
Does the tax differ between the three forms?
The tax rate is the same, three per cent, but the tax amount differs because it is charged on the total, which includes the premium or making charge. So a piece of jewellery has a higher tax amount than a bar of the same metal value.
Start from the only published rate
The India Bullion and Jewellers Association announces its rate twice on every trading day. That is the reference for tax, for loans against jewellery and for buy-back counters. It is not a shop's price, and it is not what you pay.