India's government has ended a tax exemption that banks and government-designated agencies previously enjoyed when importing gold, silver and platinum, meaning these key channels into India's precious metals market must now pay a 3% integrated goods and services tax (IGST).

For one of the world's largest gold-consuming markets, the new rule raises importers' working capital needs and financing costs.

Arvind Shrivastava, the tax secretary at India's Ministry of Finance, said in New Delhi on Thursday that the government did not extend the IGST exemption on precious metals imports, which expired on March 31 this year. From April 1, banks and designated agencies must pay the 3% tax when importing gold, silver and platinum. The change in practice has been in effect for more than half a year, and this marks the government's formal confirmation of the policy arrangement.

Shrivastava said the government wants to avoid a tax system that steers market participants toward a particular import channel, putting different gold and silver import methods on the same tax footing.

Exemption expired at the end of March, importers already paying tax

India tightly regulates its gold import channels. Most gold enters through commercial banks approved by the Reserve Bank of India and government-designated agencies; eligible jewelers can also import directly through the India International Bullion Exchange (IIBX).

In the past, banks and designated agencies benefited from the IGST exemption. The benefit was first introduced for gold imports in 2017 and later extended to silver and platinum, aimed at easing the funding pressure on compliant importers and ensuring gold can flow smoothly into the Indian market through official channels.

After the exemption expired on March 31 this year, the Indian government did not renew it. The Directorate General of Foreign Trade published a new list of authorized banks for precious metals imports on April 17, but the corresponding tax exemption notice was not updated in tandem. As a result, some importers have already been paying the 3% IGST over the past few months.

Thursday's statement means this was not an administrative oversight, and the government has decided to formally end the benefit.

The new rule does not impose a permanent additional 3 percentage point tax on all gold in India. For qualifying companies, IGST is usually recoverable through input tax credits, but it must be paid upfront at the time of import, so the most direct impact is higher working capital tied up by importing firms. The higher the gold price and the larger the import volume, the more pronounced this funding cost becomes.

Banks and designated agencies lose tax edge on import channels

With the exemption removed, the tax treatment differences among banks, government-designated agencies and other eligible import channels narrow.

India is one of the countries with the largest gold demand in the world, but its domestic gold production is limited, and jewelry, wedding and investment demand relies heavily on overseas supply. Banks and designated agencies have long been a key link connecting the international gold market with India's domestic wholesale market.

Under the old system, importing precious metals through these institutions was exempt from import-stage IGST, giving them a cash flow advantage over other channels. After this reform, that advantage disappears.

For importers, the 3% tax must be paid in advance when goods enter India. If gold prices are high, a shipment worth hundreds of millions of dollars can lock up a large amount of liquidity, requiring companies to use more of their own funds or bank financing to maintain the same import scale.

This may increase short-term financing demand for banks, gold traders and refiners, and it gets factored into the actual holding cost of gold after it enters the Indian market.

High gold prices plus taxes add to cost pressure in India's gold market

The policy adjustment comes as India's gold market is already under pressure from high prices and heavy taxes. Bloomberg previously reported that domestic gold prices in India hit a record high at one point this year, and despite a subsequent pullback, they were still about 28% higher at the end of September than a year earlier.

India's gold imports also face high import duties, and consumers must pay an additional 3% goods and services tax when buying gold jewelry. High gold prices and tax differences have already pushed some trading into informal cash markets. Some gold transactions without invoices can be settled at prices noticeably below those of formal channels, showing that taxes and financing costs are affecting different parts of India's gold supply chain.

India's peak gold consumption season typically begins with the festive season in mid-October and continues into the wedding season the following year. Removing the IGST exemption will not change India's underlying gold demand, but banks and designated agencies will need to prepare more funds for the import stage.

The core change in this policy is therefore not a restriction on gold imports, but the removal of the 3% IGST exemption that specific official import channels have enjoyed since 2017. The Indian government wants to unify the tax treatment of different import channels, at the cost of higher working capital costs for its main gold import institutions going forward.