Read article about : Gold & its purity
As already mentioned in the above article, there has to be certain metals added to pure gold to make it tough and good enough to make jewellery. This is the first level of added cost to the making process followed by the actual making charges to convert the gold bars or blocks into beautiful jewellery patterns.
The making charges is the cost of converting raw gold into jewellery. This is usually expressed in Rupees per gram of gold. In most cases, the making charges per gram of gold vary from 25 to 35 rupees (approx. value). Compared to the price of gold today, this is a negligible number.
However, there is another scary number called the ‘wastage charges’ (‘Panikkuravu’ as Keralites call it). In the good old times, the goldsmiths used to make gold jewellery by melting gold, cutting and shaping it into tiny pieces and join them together to make great handmade gold jewellery. In this process they ‘claimed’ that certain quantity of gold go wasted though these goldsmiths are actually smart enough to collect or retrieve most of the gold without wasting any. Nowadays, the gold ornaments are made in advanced machines and nothing really go wasted. However, this tradition of calculating ‘wastage’ continues and this is expressed in terms of ‘percentage’and they charge that to the customers.
The amount charged to the customers for the ‘wastage’ caused is known
The amount charged to the customers for the ‘wastage’ caused is known as the ‘wastage charges’. It’s quite ridiculous that there’s no norm for this wastage charge component and that’s exactly where your jeweller cheats you. The wastage charges typically vary from 10% to 18% in most shops while it’s quite possible to have it as high as 20% or 24% or even as low as 8%. Unfortunately, nobody knows why certain ornaments has to have more wastage than some others as claimed by the jeweller.
Hence the actual cost burden on you while purchasing gold jewellery is:
Actual cost of gold as per the day’s rate + Wastage charges + Making Charges + VAT if any. In addition, if your jewellery has any precious stones, that cost will be added up as well.
Cost of Gold Jewellery = Making Charges + Wastage Charges + Cost of Stones, if any + VAT
For example, assume that the gold rate is at Rs.2500/- per gram for 22 Karat gold. When you buy a 10 gram gold chain with the making charges at 35 rupees per gram and wastage charges at 12%, the following will be the calculation to arrive at the final price:
(1) Cost of gold alone = 10 * 2500 = 25,000/-
(2) Making charges = 10 * 35 = 350/-
(3) Wastage charges = 12 * 25,000 / 100 = 3,000/-
The total cost before VAT = 28,350/-
If the VAT is at 1% that becomes 28,633.50/-
Recently the jewellers have started representing the Wastage Charges and Making charges together as VA or ‘Value Addition’.