The Indian government has doubled the effective tax paid on the import of gold and silver to a total of 18.4% from the previous 9.2%, effective from May 13, 2026. It made the changes through two separate notifications issued late night on May 12. 

Previously, the basic customs duty on gold and silver stood at 5%, with a 1% Agriculture Infrastructure and Development Cess (AIDC), and a 3% Integrated Goods and Services Tax (IGST) rate on the total assessable value of the imports, which includes the cost, insurance, and freight price, and the applicable basic customs duties, taking the effective import tax to about 9.2%.

Now, the customs duty has been hiked to 10%, and the AIDC has become 5%, taking the effective tax rate, including the IGST, to about 18.4%. The decision comes soon after Prime Minister Narendra Modi’s exhortations to the public to reduce gold purchases for at least a year, among other actions, to help protect India’s foreign exchange reserves and the rupee exchange rate.

According to industry players and experts, this “retrograde” and “blunt” decision will not only encourage a shift to smuggling, since the Indian appetite for gold is largely cultural, but will also have other negative effects on employment. The Ministry of Finance has not yet released an official statement on the duty hikes or its justifications.  

‘Prudent management’

Sources in the government have, however, defended the decision saying it was taken against the backdrop of the impact of the West Asia crisis on India’s current account deficit (CAD). The CAD is the margin by which a country’s total imports of goods, services, and transfers exceeds its exports.

The current geopolitical situation has created significant volatility in global crude oil markets and international shipping routes,” the source explained. “As a large importer of crude oil, India remains vulnerable to elevated energy prices and supply-side disruptions, which can increase the import bill, exert pressure on inflation, and the CAD.” 

“In such circumstances, prudent management of the country’s external sector becomes essential,” they added.

They further said that the government was prioritising India’s foreign exchange resources towards essential imports such as crude oil, fertilisers, industrial raw materials, defence requirements, critical technologies, and capital goods. 

“In contrast, precious metals, while culturally and financially significant, are predominantly consumption and investment driven in nature,” they said. “Such imports involve substantial outflow of foreign exchange.” 

‘Will increase smuggling’

Industry players, economists, and investment advisors have said that the decision is not likely to impact Indians’ demand for gold, and would instead increase smuggling. 

“Our consistent position is that hiking import duties rarely curbs gold imports — it merely inflates prices,” the Gem & Jewellery Export Promotion Council said in a statement. “Despite gold prices doubling recently, imports have not declined proportionally. Such measures often fuel smuggling and escalate export costs.” 

This sentiment was echoed by Sachin Sawrikar, Founder and Managing Partner at Artha Bharat Investment Managers, who termed the import duty hike as a “blunt instrument that history tells us rarely achieves its intended purpose”. 

“India’s appetite for precious metals is structural, not cyclical; it is woven into savings culture, festive demand, and portfolio behaviour across hundreds of millions of households,” Mr. Sawrikar cautioned. “When the price of the legal channel rises this steeply, a well-established informal trade, call it grey-market or smuggled supply, simply fills the gap.”

‘MSMEs will be hurt’

Another fear among experts is the impact this decision would have on the domestic industry and all those it employs.

“Trying to micromanage consumer and industry behaviour via trade policy has substantial trade offs that we have to be careful about,” Rahul Ahluwalia, Founder-Director of Foundation for Economic Development, said. “In this case, it may negatively affect employment and exports in the jewellery sector and the ability of Indians to invest in one of the best performing asset classes at a time of global uncertainty.”

The GJEPC also said that the most severe impact of this policy will be felt by MSME manufacturers, who are the “backbone” of the industry, accounting for 80% of GJEPC’s membership and who are currently facing a critical liquidity crunch.

“This retrograde step risks undermining our industry’s competitiveness at a critical time,” GJEPC said. 

Impact on imports

According to industry insiders, the decision to hike the import duties on precious metals will see imports fall by about 15-20%. 

According to data with the Ministry of Commerce and Industry, India imported $71.9 billion of just gold in 2025-26, up 24% from the previous year.

Notably, this increase was driven by an increase in the price of gold rather than an increase in the quantity of imports, the data shows. The quantity of gold imported into India fell about 5% in 2025-26 to 721 tonnes.

The import of silver, however, jumped nearly 150% to $12 billion in 2025-26 over the previous year. Here the quantity imported also increased by 42%, despite a rise in price.

The import of jewellery made from gold and other precious metals increased by 146% in 2025-26 to $6.5 billion. 

Lack of transparency

In a note, the think-tank Global Trade Research Initiative (GTRI) also pointed out that the notifications issued by the government continue to be very difficult to understand, which defeats the objective of transparent taxation the government is trying to achieve. 

“They [the notifications] force importers, lawyers and consultants to trace references to customs notifications issued over the past 26 years,” GTRI said. “In some cases, the serial numbers mentioned in the new notifications do not match the older notifications they refer to, making interpretation difficult even for specialists.”

Determining the actual applicable duty now requires going through multiple layers of amendments, corrections and tariff changes issued over several decades, the note added.

“Such drafting defeats the objective of transparent taxation and runs contrary to India’s stated goal of improving ease of doing business and simplifying customs procedures,” GTRI said.