Indirect taxes taking sheen off gold and silver imports
Prevalent monetary limit for duty-free import of gold and silver jewellery is not sufficient
As per trade statistics, after crude oil, gold continues to be the second most imported commodity into India. This is primarily due to huge demand and not enough production within India.
In the times of economic recession and increasing current account deficit, in a bid to conserve foreign exchange to import other important essential items, such as oil, gas, coal, edible oil, machinery, the government has imposed restrictions on import of the precious metal.
Accordingly, in the last one year, the government has hiked the import duty on gold several times as part of the measures to contain the widening current account deficit. Besides increasing the import duty on gold bars and ores, custom duty has also been increased on gold jewellery for providing a level playing field for domestic jewellery makers.
Triggered by the progressively increasing duty on import of gold/ jewellery, there has been an unprecedented rise in the smuggling of gold into India in recent years. The regulatory bodies are finding it extremely difficult to contain smuggling, despite various guidelines being prescribed to regulate the import of gold into India by individuals, banks and so on.
Gold or silver jewellery imported as baggage
An Indian passenger returning to India after a stay of more than three days abroad is allowed to carry jewellery up to 45,000 without any payment of duty (the monetary limit is lowered to 6,000 in case of return from Nepal, Bhutan, Myanmar or China).
However, in case the passenger is returning to India within three days, jewellery up to 17,500 can be carried without any payment of duty.
An Indian passenger residing in a foreign country for over one year and who is returning to the country is allowed to carry jewellery without payment of custom duty up to monetary limit of 50,000 for a male passenger and up to 1 lakh for a female passenger.
However, in case they are returning to India within the various time periods, but carries jewellery beyond the duty-free monetary limit provided above, then customs duty at the rate of 36.05% becomes payable.
Further, in case of transfer of residence back to India, duty-free import of jewellery is allowed without any monetary limit provided it is proved to the satisfaction of the customs officials that the same had been taken out earlier by the passenger or any member of his family.
Import of gold and silver other than baggage
Subject to fulfilment of certain prescribed conditions, an “eligible passenger" travelling to India after a period of six months of stay abroad is allowed to import gold or silver up to a prescribed limit of 1kg in case of gold and 10kg in case of silver, upon payment of customs duty in foreign currency.
Such an import of gold and silver coins and bars may be brought into India upon payment of customs duty equivalent to 10.30%. However, in case of gold and silver jewellery, customs duty is payable at the rate of 16.60%.
Regularization of import procedures
To regularize the import of precious metals especially gold, the customs provisions have been made stringent. For instance, duty paid imports are allowed only on maintenance of certain documentation and filing of declaration.
Further, the engraved serial number of the gold bars is also required to be mentioned in the receipt issued by the customs authorities. In case of gold ornaments, a passenger is required to provide a declaration duly attested by the assessing officer with the item wise inventory of all ornaments. And in some exceptional cases to check gold smuggling through “human" carriers, the customs officials may also enquire about the antecedents of such passengers and source of funding.
Nominated banks, agencies or other entities
In addition to increase in import duty, the central bank has also restricted the import of gold by banks and nominated agencies. They are required to ensure that at least one fifth, i.e., 20%, of every lot of import of gold imported to the country is exclusively made available for the purpose of exports and the balance for domestic use. The nominated banks, nominated agencies and other entities shall make available gold for domestic use only to those entities that are engaged in jewellery business/bullion dealers and to banks authorized to administer the gold deposit scheme. Further, import of gold in the form of coins and medallions by such nominated banks, agencies and other entities is also now prohibited.
The move of the government to hike the import duty on gold and silver is a part of the measures undertaken to contain the widening current account deficit.
However, the prevalent monetary limit prescribed for duty-free import of gold and silver jewellery does not appear to be sufficient enough keeping in mind the ever increasing prices of gold and silver. This results in additional burden on the passengers migrating to India in case they are unable to establish the identity of the jewellery.
Customs officials have also been conducting stringent checks on passengers returning from destinations such as Dubai and asking them to pay duty for any gold ornaments over the stipulated limit. Additionally, elaborate procedures and the documentation aimed at providing some degree of control over the illegal import of metal into India are required to be followed by passengers.
We hope that the government would bring in integrated fiscal and physical measures to not only control the import of gold and silver into India but also smoothen the difficulties being currently faced by bona fide passengers.
Saloni Roy is senior director and Manav Saneja is manager, Deloitte Touche Tohmatsu India Pvt. Ltd.
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