Gold Jewellery Buying Tips: Wastage Charges, Making Charges, VA, Karat, 916 and more…

9 Aug

Planning to buy some Gold jewellery in India and confused about how the whole thing works? Well, I was equally puzzled by all those terminologies and promises that you get to hear in Jewellery shop commercials until I decided to dig out some information.

So here’re some tips and education that might help you in the future.

What is Karat, 916, BIS Hallmark etc?

Karat (NOT Carat) is a measure of the purity of gold. 24 carat is considered pure gold.

Since pure gold is too soft (and hence would easily bend) to make any jewellery out of it, there has to be certain other metals such as copper, silver, cadmium etc added to make it strong, shine and with the desired shade. Based on how much extra metals are added, the Karat value of the gold reduces to 22Kt, 18Kt, 14Kt or even 10Kt.

For example, 18K gold is 75% pure gold (i.e. 18/24) where as 14K gold has only 58% real gold in it.

In India, 22K gold is considered the most valuable for jewelleries and hence it has more resale value as well. 22Kt gold jewellery means it has 22/24 percent pure gold in it or in other words 91.6% purity.

And this is what is called 916 gold (symbolizes 91.6%).

BIS Hallmark Symbol

BIS Hallmark Symbol

In order to make sure that the jewellers actually sell 91.6% pure gold (when they claim to sell 22Kt gold), the Bureau of Indian Standards (BIS) made it mandatory to emboss a hallmark on all standardized gold jewellery. And such a jewellery is known as a BIS Hallmark jewellery. Before this standardization, many jewellers and goldsmiths used to cheat people with below 22Kt gold while they claimed to sell good quality 22K gold. I figured this out while selling some old gold jewellery recently.

[BIS Hallmark is NOT just for 22Kt gold. You may take a look at the BIS site for all BIS components]

Making Charges, Gold Wastage charges etc

As I mentioned earlier, 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 (‘Panikkooli’ for Malayali friends) 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. 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 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’.

Gold Jewellery buying tips for Indians

As a smart buyer, you may keep the following things in mind when you deal with jewellery shops.

  • First, if you are exchanging gold (selling old ornaments and buying new) make sure that you are getting the full price of what you are selling. i.e. As long as you are selling 22K gold, the shop may not reduce any price but give you the actual market price of the 22K gold by its weight. There are some jewellers who charge melting charges, handling charges or whatever they may call it but never ever fall into that trap
  • Each and every piece has to be weighed separately and tested for purity using the electronic purity tester while selling. i.e. if you have a pair of ear rings, test them separately
  • Ask for the current gold price on your purchase day and their standard making charges before commencing your shopping
  • Check for the BIS hallmark on the inner or back side of each of the pieces you are buying
  • Ask for the ‘wastage charges’ for each of the pieces that you are picking and be prepared for the negotiation
  • You may start by asking the ‘BEST wastage charge’ as per the salesman. Negotiate with him and tell him that you are serious about the purchase if he’s forthcoming in terms of a reduced rate. He will mostly give one percent less. Take it to the store manager or supervisor at the next level to get 2-3% negotiation done. You WILL definitely get 2-3% discount if you are making bigger purchases. If you are gone there just to pick a little 2gm earring or so, you better not negotiate much. But if you are on wedding or engagement shopping, you may save a lot by negotiating

Further tips:
There may be some sales people who may try to belittle you on your miserliness and even might raise their voice. You may remind such people that you know this business and it’s your money that is at stake. Further, you may ask them why there’s no norm for this so-called wastage charges (Hopefully at some point the government will normalize this as well).

Most jewellers may offer you a discount of 40 or 50 rupees per gram on the prevailing rate as if they are doing you a great favour. Please note that your REAL saving comes from the wastage charge negotiation. The ‘special discount valid only for today’, or ‘pick a chit and get your lucky discount’ etc are the gimmicks that they play to preempt further negotiation. Don’t fall for those tricks.

You may advise your respective wives to stop exchanging jewellery too often. Because, every time you exchange, all those value addition charges come into play and you lose a lot of money.

If investment is your goal, avoid buying jewellery but go for gold coins or even Exchange Traded Funds on Gold (ETF Gold Funds).

That’s pretty much for now. I just thought of jotting down these points after coming back from a minor purchase at Chemmanur Jewellers – not that I was hugely successful in negotiating this time. But I have certainly seen my relatives, in-laws, friends etc negotiating big time and making a huge difference in the final bill.

273 Responses to “Gold Jewellery Buying Tips: Wastage Charges, Making Charges, VA, Karat, 916 and more…”

  1. Ashwini 12. Nov, 2015 at 1:40 pm #

    Hi Ajith,

    I recently bought a gold bangle with 16 gm from a reputed gold shop in Bangalore. They have charged 22% extra , when asked they said it includes labor charge and wastage and everything. And the gold rate on the particular day was 2438/- per gm.

    Is it worth to give 22% extra for all those wastag, MC and al ?


  2. JOTHIMURUGAN 22. Nov, 2015 at 4:28 pm #

    Dear sir,

    today i am buying goldchain 24 grams in inia can You tell me around cast of the gold today india gold rate Rs 2403 wastage of chain & dollar

  3. Nirmal Kumar 26. Nov, 2015 at 3:02 pm #

    I bought Rs.80,000 worth cost of gold ornaments. Shopkeeper demanding 10% charges as hallmark gold. Is it right or not, please understand me in detail. Also tell me the charges of hallmarked jewelry / gold. I am very much confused about this. Every jewelers in area demanding 10% extra on hallmarked gold/jewelry. Send me the details hallmarked charges details.

  4. Subhash Ch 26. Nov, 2015 at 5:37 pm #

    Excellent helped me a lot…

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