The basic customs duty on gold bars has been reduced from 15% to 6%, while the Agriculture Infrastructure & Development Cess (AIDC) has been lowered from 5% to 1%. Consequently, with the current 3% GST rate, the effective tax on gold has dropped from 18.5% to 9%. Similarly, the effective tax rate on silver bars has also decreased to 9%.

Industry experts suggest that the reduction in customs duty might precede a GST rate hike. Finance Minister Nirmala Sitharaman highlighted the need for simplification and rationalization of GST rates in the Budget, indicating that the GST rates on gold and silver are likely to increase from 3% to 5%.

Ajay Kedia, Managing Director of Kedia Commodities, remarked, “While the customs duty reduction will positively impact gold smuggling, which has been rampant recently, the GST rate increase can offset some of the revenue loss.”

The proposed GST hike is expected to benefit state governments by providing them with higher tax revenue compared to their share of central tax revenues. Notably, cess and surcharge revenues are not shared with state governments.

Somasundaram P R, former regional CEO of India for the World Gold Council, stated, “As state governments receive a higher share of tax revenues, they might be more incentivized to combat smuggling.”

This move reflects the government's efforts to balance revenue collection and curtail illegal gold trade while simplifying the tax structure for precious metals.