Union budget for 2021-22 has reduced basic customs duty on precious metals like gold and silver from 12.5 percent to 7.5 percent, which will help to bring down retail prices, make exports more competitive and arrest the trend of increased smuggling into India.
The budget also reduced gold and silver dore bar customs duty from 11.85% to 6.9% and from 11% to 6.1%, respectively. Customs duty on platinum and palladium were also reduced from 12.5% to 10%. However, part of this benefit will be nullified by a 2.5% agriculture infrastructure and development cess.
"This will help the gem and jewellery exports to become globally competitive and move to the next level. In fact, high duty on precious metal had made our exports uncompetitive leading to large Indian diaspora and NRIs moving to Dubai, Hong Kong or other centres to buy jewellery which was largely impacting the employment as well as business in India," said Colin Shah, chairman, Gem and Jewellery Export Promotion Council (GJEPC). The industry demand was to cut customs duty on gold to 4%, withdraw tax collected at source (TCS), reduce import duty on polished precious and semi-precious gemstones in the Union Budget 2021.
Currently, gold attracts 12.5 per cent import duty and 3 per cent GST and total duty and GST implication works out to be 15.5 per cent. The gold and diamond trade together accounts for 7.5 per cent of the country's GDP and 14 per cent of the country's total exports. About 60 lakh people are employed in this sector. India imports 800-900 tonnes of gold annually and another 200-300 tonnes are smuggled into the country. Import duty on gold was increased from 10 to 12.5 percent in the 2018-19 budget. In August 2013, the then UPA government had introduced a '80:20' rule, which allowed traders to import gold only after exporting 20 percent of the previous imports. The NDA government abolished it in 2014. In 2018, some of the Middle East countries imposed 5 per cent duty on gold, which is much lower than the 12.5 percent in India. Thus gold was cheaper by upto 15 percent in a place like Dubai as compared to Mumbai. Gold bar purchases are exempted from any duties and gold jewellery purchases have a flat 5 per cent duty in the UAE. Further, tourists visiting to the UAE and buying gold can claim a VAT refund at any airport in the UAE.
Also read: Budget 2021
Coronavirus pandemic and high prices had caused gold demand to fall by 35% to 446.4 tonnes in 2020 compared to 690.4 tonnes in 2019. In value terms, the demand fell by 14% to Rs 188,280 crore during the last year, from Rs 217,770 crore a year ago. Total gold jewellery demand in India for 2020 was also down by 42% at 315.9 tonnes as compared to 544.6 tonnes in 2019 and in value terms, jewellery demand was Rs 133,260 crores, down 22% from Rs 171,790 crore in 2019.