Gold jewellery to get cheaper by 9% due to customs duty cut

How will change in customs duty and capital gains taxation rules affect gold purchases

The government’s move to slash the basic customs duty on gold to six percent from 15 percent will make jewellery 9 percent cheaper for the end user, industry experts said.

“Retail consumers will have to pay less by approximately 9 percent. The effective rate of custom duty would be 6 percent, including 1 percent for agriculture, infrastructure, and development Cess (AIDC),” said Prathamesh Mallya, DVP- Research, Non-Agri Commodities and Currencies, Angel One Ltd.

The gems and jewellery industry, which relies heavily on imported raw materials, is likely to benefit from reduced costs. This reduction can potentially lead to lower domestic prices pushing the demand for consumers and increased competitiveness for the industry, opined Naveen Mathur, Director - Commodities & Currencies, Anand Rathi Shares and Stock Brokers.

"However, considering the positive overall investment fundamentals with factors such as economic slowdown fears, geopolitical tensions, central bank buying and global ETF inflows, one may start to accumulate gold on further dips of 2 – 3 % in prices," Mathur added.

Finance Minister Nirmala Sitharaman announced today that she had slashed the basic customs duty on gold to six percent from 10 percent in her budget 2024 announcement. The reduction in customs duty will be effective July 24, 2024.

“To enhance domestic value addition in gold and precious metal jewellery in the country, I propose to reduce customs duties on gold and silver to 6 per cent and that on platinum to 6.4 per cent,” Sitharaman said in her speech.

According to the Budget 2024 document, this measure aims to reduce input costs, deepen value addition, promote export competitiveness, correct inverted duty structure, and boost domestic manufacturing.

The custom duty on the gold bar has been reduced from 15 percent to 6 percent; Gold Dore is reduced to 5.35 percent from 14.35 percent, and gold and silver findings are reduced to 6 percent from 15 percent.

"The finance minister has made a big announcement regarding the reduction in Gold and Silver customs duty from 15% to 6%. BCD (Basic Customs Duty) is reduced from 10% to 5% and AIDC (Agriculture Infrastructure and Development Cess) is reduced from 5% to 1%," clarified Sachin Kothari, Director of Augmont - Gold For All.

"Indian consumers would be able to buy now at a 9% cheaper rate from today, so it will boost physical demand," he added.

According to analysts the import duty reduction is yet to be fully reflected in MCX gold prices, there is a possibility of further decline in MCX gold prices in near term perspective. MCX Gold prices have fallen by Rs 4000 from Rs 73000 to Rs 69000 as a knee-jerk reaction after this announcement and are expected to fall more up to around Rs 67000 per 10 gm as per international pegged price.

Colin Shah, MD, Kama Jewelry is of the opinion that this move was one of the long-standing demands of the industry, and announcement at a time when the industry is already grappling with various challenges will certainly help. "This will play a major role in bringing down the cases of smuggling and provide cost benefits to the consumers in the country, which will provide a major fillip to the demand in the domestic market. This will also provide a big boost to Free Trade Agreement (FTAs), thereby creating a space for expanding the exports in the less explored overseas markets," he added.