India has taken decisive steps to close a significant loophole that allowed gold importers to evade import duties, potentially costing the exchequer billions of rupees. The move, which follows the Budget 2025 announcement, involves tightening import regulations on gold and silver, particularly from the United Arab Emirates (UAE), and introducing new Harmonized System (HS) codes for precious metals. This action is aimed at preventing the misuse of the India-UAE Comprehensive Economic Partnership Agreement (CEPA).
The issue stemmed from importers exploiting the CEPA, which came into effect in May 2022. The agreement allowed India to import up to 200 metric tons of gold annually from the UAE at a concessional import duty rate of 1% under the Tariff Rate Quota (TRQ) system. However, a loophole existed where importers misclassified nearly pure gold (containing 99% or more gold) as platinum alloy. This mislabeling allowed them to take advantage of the lower duty benefits extended to platinum under the CEPA, significantly undercutting the standard import duties on gold.
Reports indicate that the government was aware of this practice, with internal records from tax authorities acknowledging the ongoing exploitation of the loophole. It was estimated that this circumvention had cost India a substantial loss in revenue since 2022. The trade rule on platinum, which stated that any alloy with 2% or more platinum by weight should be classified as a platinum alloy, was written when platinum was significantly more expensive than gold. This outdated rule became the crux of the problem, enabling the disguised import of gold.
To address this, India has introduced new HS codes for key commodities, including gold dore, silver dore, and high-purity platinum. Specifically, only platinum with 99% or higher purity will now qualify for duty concessions. Any other platinum compositions will face stricter import restrictions, effectively blocking the route for importing gold disguised as platinum. Furthermore, the regulations stipulate that imports of gold and silver in unwrought, semi-manufactured, and powdered forms will only be permitted through nominated agencies, qualified jewelers, and valid TRQ holders under the CEPA.
According to the Directorate General of Foreign Trade (DGFT), gold containing 99.5 percent or more purity by weight and silver bars containing 99.9 percent or more purity are now classified under the restricted category. The government official stated that these measures follow the budget announcement to create distinct HS codes to prevent gold imports from being misclassified, ensuring better alignment between customs duties and import regulations.
The restrictions are expected to have a significant impact on gold imports and trade dynamics between India and the UAE. Bilateral trade between the two countries reached approximately $84 billion in 2024, and they had set a target of $100 billion by 2030. While the CEPA has boosted trade, the plugging of this loophole demonstrates India's commitment to maintaining the integrity of trade agreements and preventing revenue losses through misclassification and underreporting. These changes reflect a proactive approach to adapt trade policies in response to market conditions and attempts to exploit regulatory gaps.
