There are many factors that influence gold prices, such as world rates, the rupee and demand. However, one of them tends to influence the price of gold subtly without getting noticed, and this is import duty.
While buyers are aware of the final price tag on a jewellery piece, few know that a significant proportion of that price is determined before gold is shipped to India.
Definition of import duty on gold
Import duty is the tax levied by the government on the gold imported from other countries.
As most of the gold used in India is imported, the import duty ends up being an inherent component of the cost as soon as the metal is imported.
As of May 2026, India’s import duty on gold stood at 15%, a sharp rise from the earlier rate of 6%.
How does it make the price rise?
When the duty increases, the cost of importing gold into India also goes up. However, this increase does not stay with the importer for very long – it flows through the supply chain until it reaches the buyer. This effect can be seen at city-level gold rates. For example, buyers tracking the gold rate in Bangalore will see the price responding to import duty changes, despite international prices being relatively stable.
Take gold worth ₹1,00,000. Under the revised rules, duty on that comes to around ₹15,000 — nearly two and a half times what you’d have paid at the old 6% rate. Now scale that up. India imports gold in the hundreds of tonnes every year, so that extra ₹9,000-odd per lakh doesn’t stay small for long. It filters straight into what buyers end up paying at the counter.
It is for this reason that Indian gold prices do not move in tandem with international prices, because the change in domestic import duty alone is enough to alter consumer prices overnight.
Why did India increase duty in 2026?
The decision was not motivated exclusively by the desire to increase revenue from the gold imports. A weakening rupee, increasing import bill and foreign exchange reserve pressures forced the government to make a decision.
The duty increase was justified by officials as a balance of payments measure rather than a measure aimed at the gold market specifically. It was expected to reduce gold imports and decrease the drain of foreign currency, as gold imports did not contribute to production in the country.
Along with the increased duty, the government also introduced restrictions on jewellery and bullion imports. Taken together, these measures indicated that conservation of foreign exchange had become a priority.
What is the impact on consumers and investors?
For a regular buyer who purchases jewellery, increased duty is likely to mean increased cost even if international gold prices remained stable.
Investors will find things to like and dislike in increased duties, because they could increase the difference between domestic and international prices, making gold paper investments more profitable compared to the metal.
Duty increases also affect products associated with gold. For example, pledged gold is valued according to the market rate; hence, it will positively impact the amount of money that one is able to borrow using gold as collateral.
For consumers looking to buy gold jewellery for weddings or some other event, it will be helpful to follow the news about changes in import duty along with gold rates every day.
Conclusion
Import duty is likely the last thing that one would think of when gold becomes more expensive; however, it plays an important role behind the scenes. It affects the cost of the metal at the very first step of the supply chain and follows it further through all the stages.
Understanding this link can help consumers and investors understand fluctuations in the prices better. The next time you see gold prices going up, do not hesitate to consider the changes in the import duty policy as well.
