Budget 2026: Time to realign India’s gold policy with economic and cultural realities

India is one of the world’s largest importers and consumers of gold. Notably, Indian households (and temples) are estimated to hold more gold than the combined reserves of the world’s top ten central banks.  

India’s gold regulatory framework reflects a dual reality: deep-rooted cultural affinity and government’s efforts to curb smuggling and manage the current account deficit. 

Multi-layered regulatory regime governing gold  

Consequently, gold occupies a unique position in India’s legal architecture. Few commodities are governed simultaneously by as many statutes - the Customs Act, the Foreign Trade Policy, the Foreign Exchange Management Act, 1999 (“FEMA”), RBI Master Directions, Income Tax Act, BIS hallmarking, anti-smuggling laws and anti-money laundering laws.  

Under India’s Customs and foreign exchange framework, gold imports are restricted to specific categories of entities - (i) RBI/DGFT-appointed nominated agencies (such as banks); (ii) IFSCA-recognised jewellers operating through the India International Bullion Exchange (IIBX); and (iii) specified Tariff Rate Quota (TRQ) holders under the India–UAE trade arrangement. Allegations of gold smuggling carry severe consequences, exposing accused persons to penalties and prosecution under the Customs Act and FEMA, as well as preventive detention under COFEPOSA Act.  

Soon after returning to power for a third term in 2024, the NDA government reduced the Customs duty on gold bars from 15% to 6%, aiming to support jewellery exports and curb smuggling driven by duty arbitrage.  

Consistent with international standards, India’s anti-money laundering legislation (PMLA Act) treats jewellers engaging in cash transactions of ₹10 lakh or more as “reporting entities”, subject to extensive record-keeping and reporting obligations. In parallel, the income tax law expressly prohibits cash transactions exceeding ₹2 lakhs. 

Gold transactions under lens

While offences relating to import, export, and smuggling of gold traditionally fall within the jurisdiction of Customs authorities under the Customs Act, there has been increased scrutiny by the Enforcement Directorate (ED) recently. Gold transactions are increasingly examined through the lens of foreign exchange violations and money laundering, on the premise that large-scale gold trade and smuggling networks often involve unauthorised cross-border fund flows, hawala payments - areas governed by FEMA and PMLA laws.  

Getting gold policy right in Budget 2026

With the Union Budget approaching and global trade becoming increasingly less liberal, India’s gold policy stands at a critical inflection point and must align with our economic and cultural realities. 

Firstly, the government must exercise restraint in increasing customs duties on gold. Concerns relating to the current account deficit are better addressed by promoting jewellery exports. With access to gold at competitive prices, India’s gems and jewellery sector can emerge as a global manufacturing and export hub. India must introduce export promotion schemes specifically tailored for the gems and jewellery sector in the upcoming Budget. 

Secondly, stringent enforcement powers under COFEPOSA and the PMLA must be exercised with restraint. In cases involving bona fide interpretational disputes, particularly where transactions are routed through banking channels, the invocation of extraordinary measures designed for organised smuggling networks is not warranted. 

Thirdly, past attempts at gold monetisation have yielded limited success, largely due to apprehension among households regarding scrutiny of the source of gold and potential tax or enforcement exposure. Policymakers should consider introducing a re-imagined gold monetisation framework with attractive, tax-exempt interest rates and, more importantly, an unequivocal clarificatory circular assuring participants that the source of gold or funds will not be questioned. Without this legal certainty, no monetisation scheme, however well designed, can meaningfully unlock India’s vast idle gold reserves. 

Fourthly, it is also imperative that the government implements long-pending revisions to the Gold Personal Baggage Rules as also recently flagged by the Delhi High Court. Under Rule 5 of the baggage rules, passengers residing abroad for over one year are permitted to bring duty-free gold jewellery up to 20 grams (with a value cap of ₹50,000) for men and 40 grams (with a value cap of ₹1,00,000) for women. These limits have become redundant in light of prevailing gold prices. With a maximum value-cap of ₹1 lakh, the quantity of gold that could recently be purchased is less than 10 grams while the law permits a woman to carry 40 grams of gold within the country. 

As India approaches another Union Budget, gold policy calls for balance and deeper understanding of our cultural affinity and the potential to become an export hub. In regulating gold, the objective should be to chase illicit flows, not household jewellery. India’s vast household gold reserves have the potential to become a powerful instrument of economic freedom. 

(Visalaksh is a Partner at Economic Laws Practice; Tater is an Associate Partner at Economic Laws Practice. Views are personal.)