Presenting the Union Budget 2024-25 on July 23, Finance Minister Nirmala Sitharaman said to enhance domestic value addition in gold and precious metal jewellery in the country, the government has proposed to reduce customs duties on gold and silver to 6 per cent and that on platinum to 6.4 per cent.
Experts feel the cut in customs duty on gold and silver is undoubtedly a positive development for investors. It has led to a decrease in gold prices, making it more attractive for those considering investing in this precious metal.
The basic customs duty on coins of precious metals, gold/silver findings, and gold and silver bars was reduced to 6 per cent from 15 per cent. It was cut to 5.35 per cent from 14.35 per cent for gold and silver dore.
This article deals with what the experts feel about the custom duty cut and the latest gold indexation rules after Budget 2024.
Key Implications of the Duty Cut
- Lower Gold Prices: The immediate impact is a reduction in gold prices, making it more affordable for investors.
- Increased Demand: Lower prices can potentially stimulate demand for gold, both for investment and consumption purposes.
- Potential for Price Volatility: While the duty cut is a positive factor, gold prices are influenced by various global economic conditions, geopolitical events, and investor sentiment. Therefore, price volatility can still be expected.
Is Gold a Good Investment Now?
Whether gold is a suitable investment for you depends on your individual financial goals, risk tolerance, and investment horizon.
Gold in India is more than just a precious metal. Indian consumers have an emotional connection with the yellow metal, the significance of which comes to the fore on special occasions, said Vikas Singh, MD & CEO, MMTC-PAMP.
“Given this cultural context, a reduction in duty on gold is a welcome move, one which is expected to drive down the retail price of the metal and stymie the grey market. This in turn is expected to set off a virtuous cycle of increased consumption and contribute substantially to the exchequer and facilitate the growth of India as a precious metals hub,” Singh explains.
Benefit Domestic Companies
Raghvendra Nath, MD, Ladderup Wealth Management, feels that reductions in customs duties on gold and silver are anticipated to benefit domestic companies by potentially lowering the prices of these precious metals.
“Initial market response has been negative due to the increase in LTCG tax on listed equities to 12.5% from 10%, an increase in STCG to 20% from 15%, and higher STT rates on Futures & Options at 0.02% and 0.1%, respectively,” Nath points out.
Industry Welcomes Move
The gems and jewellery industry welcomed the government’s move, saying it would reduce input costs, increase value addition, promote export competitiveness and boost domestic manufacturing.
Affordability For Consumers
The reduction in import duties will enhance affordability for consumers and competitiveness for the manufacturing sector by releasing working capital, according to Vipul Shah, Chairman of The Gem and Jewellery Export Promotion Council (GJEPC).
Shah said, “The abolition of the 2 per cent equalisation levy and introduction of the Safe Harbour Rule on rough diamonds for sale at Special Notified Zones (SNZs) will firmly establish India as a global diamond trading hub.”
World Gold Council Regional CEO, India, Sachin Jain said, “For the gold industry, the reduction in basic customs duty on gold and Agriculture Infrastructure and Development Cess (AIDC) will boost the overall competitiveness of the domestic jewellery industry.”
He said it would effectively reduce the overall taxes on gold from around 18.5 per cent, including GST, to 9 per cent.
“It’s a massive step in the right direction, as it will reduce the incentives for smuggling of gold. It will create a level playing field for honest industry stakeholders. Gold prices will also correct locally, thereby giving a boost to retail gold demand – another incentive to the Indian gold industry,” he stated.
Indexation on Gold Assets: A Recent Change
Until recently, indexation benefits were available on long-term capital gains (LTCG) from gold. This meant that the purchase price of gold could be adjusted for inflation, reducing the taxable capital gains.
The Big Change
However, the Union Budget 2024 has removed indexation benefits for gold. This is a significant change that impacts how capital gains from gold are taxed.
- Short-term capital gains (STCG): If you hold gold for less than 24 months and then sell it, you’ll be taxed at your regular income tax slab rate.
- Long-term capital gains (LTCG): If you hold gold for more than 24 months, a flat 12.5% tax will apply to the capital gains.
Impact of the Change
- Higher tax burden: Without indexation, you’ll likely pay more tax on your gold gains.
- Shorter holding period: The LTCG period has been reduced from 36 months to 24 months.
- Simplified calculations: The removal of indexation simplifies tax calculations.
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