No benefit in buying gold from Dubai after customs duty cut, says Popley Jewellers' Rajiv Popley

Rajiv Popley, Director, Popley Group

Jewellery stores across India were promoting a 10 percent fall in gold prices this week due to global easing in the yellow metal rates when the Union Budget 2024 added to their sparkle.

The Budget offered three relief measures to the gems and jewellery sector – a substantial reduction in customs duty to 6 percent from 15 percent earlier, a reduction in long-term capital gains tax to 12.5 percent from 20 percent and a decrease in the period of holding for gold to become long-term asset by a year to 24 months.

Raw diamonds too received a minor benefit that would help jewellers but not the end-consumer directly.

In a post-Budget discussion with Moneycontrol's Khyati Dharamsi, Rajiv Popley, Director Popley Group of Jewellers, explains why buying gold from Dubai is no longer as enticing as before and why Indian gold jewellery is now again competitive in the global market.

What was the initial reaction on jewellery store floors after the Union Budget announcement?

Immediately after the announcement, we reduced the prices in our stores by Rs 500 per gram. But many jewellery chains did not alter the price. Customers are sentimental about their purchases. They compare and realise they didn’t receive the correct gold prices. For jewellers like us, it is a matter of trust.  There are instances when we are told that at other chains they were charged a low mark-up, but the per-gram rate was higher. Gold buyers are clued in today and check the rates before coming to the stores.

Also read: Budget 2024: What’s cheaper and costlier? Here's the list

Does it still make sense to buy gold from Dubai and bring it back to India?

The reduction in customs duty to 6 percent means that the value added tax (VAT) of 5 percent applicable to gold purchases in Dubai isn’t sufficient to beat the labour cost differential. ‘Overseas gold is cheaper than in India’ is just a mindset. The labour cost is significantly lower in India.

Isn’t the VAT refunded in Dubai?

The NRIs, who are residents in Dubai, do not get VAT refunds. Indians travelling abroad and making purchases receive only about 60 percent of the VAT back.

Why can’t Indian resident buyers still consider Dubai gold purchases?

We have stores in both India and the UAE. Hence, we often see cases, where the spouse travelling or working abroad purchases gold bangles that do not fit well and need to be altered in India or necklace designs that aren’t of interest to the family member.

This creates wasteful expenditure, which is now not required. Prior to the Union Budget 2024, you were bound to purchase gold abroad because you had a price differential, which is no longer available. So, allow your family members to choose what they like and something that appropriately fits them as per Indian taste.

How will the change in long-term capital gains tax to 12.5 percent impact people?

Buyers weren’t officially selling back their old gold to the same jeweller, who will pay them by cheque or bank transfer when the tax rate was 20 percent. Additionally, three years was a long wait. With the reduction in both the rate and the timeline, we will see more sale transactions happening on the table and not in cash like earlier.

Also read: Long term capital gains tax hiked from 10% to 12.5% in Union Budget

Are consumers aware of the tax implications?

The homemakers and small buyers wouldn’t know. But seasoned consumers know as they are creating balance sheets and their chartered accountants ask them. So they know they need to pay tax on selling gold jewellery, coins and bullion bars.

Will this put an end to the parallel trade and alternative route for gold into India?

The parallel trade or the recycling of gold that was happening, but not recorded, will end. This is because there is no set-off for the capital gains on gold, unlike property, where the gains can be invested in another property within 24 months to reduce the tax implications.

What are the government’s future moves likely to be?

From what I foresee, there is a hint towards asset creation on record. We must remember that India comes with the past of wealth tax, where the inventory was managed from the back end. After that wealth tax was abolished, the inventory became grey. Now the discussion is to get all your gold holdings on record, through maybe dematerialising your gold holdings or declaring your gold. and coming clean.

This move could also help us understand the overall gold holdings and the ownership of the gold, whether it is owned by the spouse or inherited over generations. There could be item-wise year marking of gold.

As we will have another Union Budget in around six months, can there be an further increase in taxes?

We are optimistic that the benefit will not be taken away by increasing the goods and services tax (GST) from the current slab of 3 percent. When a consumer buys a piece of jewellery, both the gold and labour/value addition costs attract 3 percent GST, even though as jewellers we pay 5 percent for the labour job.