Gold duty evasion fight turns into a game of whack-a-mole

Imports of so-called liquid gold have surged since savvy importers discovered a novel method to skip customs duty nearly five years ago, import data showed. After the last budget plugged another tax-evasion route, such shipments have accelerated even more.

Compounds of gold with other elements–also called liquid gold–are used mostly in industrial processes. Importers ship them at zero duty from countries such as the UAE, Japan and Australia that have trade treaties with India, compared with 6% duty on the yellow metal. Once the consignments land in the country, gold is extracted in small refineries.

Imports of such compounds soared 9.25 times over a year earlier and 2.84 times quarter-on-quarter to 69,879 kg in the January-March period, shows data from the Directorate General of Commercial Intelligence and Statistics (DCGIS). That’s equivalent to $1.29 billion worth of gold imports.

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By comparison, actual gold shipments fell 51.2% sequentially and 0.9% over a year earlier to $9.5 billion in Q4FY25. While higher imports of gold compounds distort the trade data, they also cause a loss to the exchequer.

India imported 1,11,856 kg of liquid gold from the UAE, Japan, and Australia in FY25. Since the actual gold content in such imports is at least 15%, this works out to gold shipments of 16,778 kg. At an average price of ₹90 lakh per kg of gold, the government lost about ₹906 crore in customs duty during the fiscal, according toMint’s calculations.

Even though this is legally permitted, the market gets distorted as there is a huge discount because one person is importing gold at 6% duty, while another is importing it in compound form at 0% duty, said Surendra Mehta, national secretary of the India Bullion and Jewellers Association. People importing gold compounds sell the yellow at highly discounted rates, which makes price discovery impossible, he said.

Queries emailed to the Directorate General of Foreign Trade (DGFT) and the commerce and industry ministry remained unanswered.

Spike after curbs on platinum alloy imports

Gold compounds such as aurous oxide, aurous chloride, gold trichloride, gold sulphide, double sulphites of gold, and gold cyanide are primarily intended for industrial and scientific purposes, said Brijesh Kothary, partner at Khaitan & Co. They are used for electroplating (coating electronic components and jewellery), ceramics and glass (for decorative finishes), photography (for image toning), and medicine (for therapeutic treatments), he said.

To be sure, imports of gold compounds stood at 2,143 kg in FY21, when this route was largely unexplored. Since then, the shipments have surged 59 times over the years to 1,27,886 kg in FY25, shows data from the DGCIS.

However, these imports spiked in the January-March quarter because of a policy change. The DGFT put platinum alloys having less than 99% platinum under the ‘restricted’ category from ‘free’ in March after the change was announced in the budget in February. Importers will now need a licence from the DGFT for such shipments.

According to the Customs Tariff Act, an alloy with platinum in excess of 2% qualifies as a ‘platinum alloy’. Importers were bringing in an alloy with just 2% platinum and 98% gold.

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“Some importers were using a loophole and importing platinum alloy from certain countries, which had the majority of gold in it and paying a zero percent duty," said an official on the condition of anonymity. Now that platinum alloys are moved to the restricted category, they have started importing gold compounds to save duty, the person said.

Classified under HS code 28433000 of the Customs Tariff Act, 1975, liquid gold attracts 10% basic customs duty, according to Kothary. “However, imports from Japan, UAE, and Australia are allowed at zero percent basic customs duty under the India-Japan Comprehensive Economic Agreement (CEPA), India-UAE CEPA, and India-Australia Economic and Trade Agreement, respectively."

The bulk of the gold compound imports into the country are primarily coming from these three nations, which accounted for around 87% of such shipments.

Skewed import data

“Usually gold compounds come in lower purity, where around 15-22% is gold, but can be easily refined into pure gold," said a bank official, speaking on the condition of anonymity. “Ones who have a refinery can do this themselves as it is a simple process, and those who don’t can outsource."

What makes it even easier is that importers get direct delivery of the shipments and require no permit. In contrast, gold importers need a licence from the DGFT and the yellow metal is imported via the India International Bullion Exchange (IIBX) in GIFT City and nominated banks.

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It discourages gold imports via the IIBX, said Mehta of the bullion association. “This may bring down the volumes at IIBX."

To be sure, gold imports at IIBX surged 11.7 times year-on-year to 93,072 kg in FY25, according to the IFSCA quarterly bulletin.

The situation might also be skewing India’s import data, said the bank official quoted earlier. “Gold imports may look lower, but gold is still coming in, just under a different HS code that doesn’t classify it as gold. So policymakers may falsely believe that gold imports have fallen, when in fact, the route has just changed."