Whalesbook
Tax Dispute Forces Payment for Gold Imports
The decision to pay the 3 percent Integrated Goods and Services Tax (IGST) followed a severe drop in gold imports during April 2026. Customs authorities began demanding the levy on shipments routed through banks, despite an exemption that had been in place for nearly a decade. The annual government order renewing this exemption was not issued when India's new financial year began on April 1, 2026.
Banks initially halted shipments, awaiting the exemption's restoration. However, with the government signalling a desire to curb gold imports, banks eventually agreed to pay the tax to maintain supply chains. This move comes as India faces significant pressure on its foreign exchange reserves and trade deficit, exacerbated by the rupee's depreciation against the US dollar.
April Imports Plummet Amid Halt
The import halt had a drastic effect, with gold imports in April 2026 estimated at just 15 metric tons, a near 30-year low for the month. This contrasts sharply with the monthly average of approximately 60 metric tons in the previous financial year. The timing was particularly damaging, coinciding with Akshaya Tritiya, one of India's largest gold-buying festivals. Gold dore, a semi-pure alloy used by domestic refiners, also saw import difficulties as new licence applications were rejected or deferred.
Resumption and Economic Outlook
As of May 2026, banks are clearing shipments by paying the IGST. While this ensures supply continuity and allows jewellers to restock depleted inventories, it is expected to widen the trade deficit and add further pressure on the rupee. India's position as the world's second-largest gold buyer means the resumption of imports could offer support to global bullion prices. Despite improved supply, domestic demand remains weak, with gold trading at a discount in the local market.