The gold prices had touched record highs after the start of the pandemic. In March 2020, (the start of the pandemic), gold was trading in the range of Rs 41,000 to Rs 43,000. However, it had crossed Rs 50,000 level in July 2020 and touched the record high of Rs 56,000 in August 2020. (Data as per MCX India). The hike in import duty to 15% is going to make the gold buying even more expensive for customers.
Gold purchases have been increasing since last year. Indians love buying gold as they consider it the safest investment, hedge against inflation and easy to liquidate in times of financial emergency.
How a jeweller calculates the price of gold jewellery
As gold is traded as a commodity, its price varies daily. Further, every city has its own jewellery association and the gold rate declared by these associations varies across towns.
The gold bought by the jeweller, which is later on transformed into a jewellery piece, will have import duty tax already included in the price of the piece. Thus, when a customer buys gold jewellery, the import duty is already added to the cost of gold.
While the domestic price of gold will continue to vary with variation in international prices the actual purchase cost for domestic buyers will be higher by the amount of increase in duty percentage irrespective of the international gold prices/imported cost of the yellow metal.
Most jewellers calculate the final price of gold jewellery using the formula mentioned below:
Current price of 10 gm (22 KT or 18 KT) gold X (Weight in grams) + Making charges + GST at 3% on (Price of jewellery + making charges) + hallmarking charge of Rs 35 per item.
Nishant Shah, Partner, Economic Laws Practice says, “As a majority of jewelry manufactured for domestic market from gold imported into India, such an increase in the rate of customs duty on gold is bound to have a consequential implication for Indian customers. New jewellery is likely to be more expensive for Indian customer who would therefore lean towards getting their old/ancestral jewellery redesigned.”
Why import duty was hiked on gold
As per the press release issued by the finance ministry today, “There has been sudden surge in imports of gold. In the month of May, a total of 107 tonnes of gold was imported and in June also the imports have been significant. The surge in gold imports is putting pressure on current account deficit. To curb import of gold, customs duty has been increased from present 10.75% to 15%.”
Abhishek Jain, Partner, Indirect Tax, KPMG in India says, “The Government has increased the Customs duty rate for import of gold bars from current rates of 6.9%/ 7.5% to 11.85%/ 12.5% while exempting the levy of social welfare surcharge thereof. This change will slightly reduce the outflow on account of gold imports and help provide stability to the INR to USD ratio.”
According to Bloomberg, this is a reversal of last year when India cut the tax to 7.5% in the federal budget. Do note that the government has cut the customs duty on gold to 7.5% in Budget 2021 from 12.5% previously.
Gold buying has become safer
However, the government has made buying gold safer to save customers from fraudulent jewellers. As per the latest rules, effective from June 1, 2022, jewellers can sell only hallmarked gold jewellery, irrespective of its purity. Every gold jewellery must bear a hallmarked sign, irrespective of its caratage.
The government has revised the signs of purity on gold jewellery as well. Effective from July 1, 2021, hallmarked gold jewellery will have the following signs:
a) BIS logo
b) Purity/Fineness grade
c) Six-digit Alphanumeric code, also known as HUID.
Do note that a jeweller will charge you additional Rs 35 for every gold item bought by you.