Here’s a fun paradox: India’s government nearly tripled the effective tax burden on gold imports in May, and gold is now cheaper than it was before the hike took effect.

On June 10, 2026, gold futures on the Multi Commodity Exchange (MCX) dropped nearly 2%, sliding to ₹149,500 per 10 grams. That’s the lowest level since early May, before the government raised import duties from 6% to 15% on May 13. The culprit isn’t domestic policy reversals. It’s a broad decline in international bullion prices that has more than offset the tariff increase.

The duty hike that backfired

The May 13 revision restructured gold import levies to include a 10% basic customs duty plus a 5% Agriculture Infrastructure and Development Cess. Combined with the existing Goods and Services Tax (GST), the total effective tax burden on gold surged to 18.45%, up from 9.18% before the change.

Gold demand in India plummeted by approximately 70% in the two weeks following the duty hike. Industry sources estimate purchases dropped to around 7.5 tonnes during that stretch, compared to nearly 25 tonnes in the same period a year earlier. Jewellers across the country reported steep declines in buying activity.

Global prices did the heavy lifting

The unorganized sector, which includes smaller jewellers and regional traders, feels the pain most acutely. These businesses operate on thinner margins and lack the scale to absorb an 18.45% effective tax rate without passing it directly to consumers. Larger organized retailers, by contrast, have more flexibility to manage pricing and inventory cycles.

Smuggling: the predictable consequence

Reports suggest that illicit gold inflows into India could exceed 100 metric tonnes in 2026 as the grey market moves to capitalize on the price discrepancy. For context, India’s total annual gold demand typically runs in the range of several hundred tonnes, so 100 tonnes of smuggled gold would represent a significant share of the overall market.

India has been through cycles of duty hikes, smuggling surges, and eventual policy retreats before. The most notable recent precedent was the 2013 period when duties were raised to 10%, sparking a similar wave of illicit imports that eventually forced a partial rollback. The current 15% rate exceeds that 2013 peak, and the total effective tax burden of 18.45% is substantially higher.

What this means for gold investors

For domestic investors and traders, the current environment presents a genuinely unusual setup. Gold prices are at multi-week lows in rupee terms despite a massive tariff increase. If international prices stabilize or recover, Indian gold could reprice higher quickly as the duty premium reasserts itself.

A 70% demand drop and a potential smuggling boom of 100-plus tonnes are exactly the kind of outcomes that tend to trigger policy reconsideration. Any reduction in duties would immediately boost legal demand and could send domestic prices higher, even if global prices remain flat.