How is the domestic price of gold determined in India?

Seen as a global currency, gold price changes almost daily and is dependent on various factors. Let's understand the process of how the gold price is calculated and what determines gold prices in India.

• The London Bullion Market determines the spot price or the current market price of gold.
• A nominal transaction charge of around 0.15% (including banks commission and overseas supplier premia) by importing banks is then added to the retail price.
• Adding the bank margins to London Bullion Market's spot price helps determine the metal's value.
• Its price is later converted to Indian rupees as per Reserve Bank of India (RBI) guidelines.
• Once its value is determined in Indian currency, custom duties are levied to arrive at a landed price.
• Other factors, like premia/ discount on the landed price, market trends and government policies also determine the spot price of gold in the Indian market.
• Before gold bar and jewellery-makers add their production cost, gold bullion and jewellery are subjected to state taxes, such as GST.
• End consumers also have to bear other costs like labour cost, wastage charges, and making charges. There is also 3% GST (applied on gold price + making charges).

To know more, you can watch this video.

How do you calculate tax on gold?

When buying gold, there are certain taxes that come into play. Here are some of the ways that tax on gold is calculated:

• Imported gold, primarily gold bars, is subject to 10.75% customs duty.
• From 1 July, 2017, GST of 3% is applicable on custom duty, which is borne by the end consumer.

What are things to consider while buying gold?

Gold can be bought offline and online, depending on the kind of gold you choose to buy. More importantly, it can be purchased easily, which makes it an excellent investment option.

However, there are several factors to consider while buying gold:

• Cost per gram: One of the first steps when buying gold is to find out the current price per gram. You can find this price on My Gold Guide’s live price page, Indian Bullion and Jewellers Association (IBJA), and the Multi Commodity Exchange of India Limited (MCX).
• Purity level: Gold is available in different purity levels - 14, 18, 22, 24 karats, and more. The price of gold you buy depends on the purity level you choose.
• Certification of genuineness: Hallmarked gold signifies the assurance of its purity and adherence to the verification process set by BIS (Bureau of Indian Standard). The caratage allowed under mandatory hallmarking as per BIS guidelines include 14k, 18k, 20k, 22k, 23k, and 24k.
• Other charges: When buying gold jewellery, it is also essential to find out additional costs, like making charges (i.e. labour charges and wastage charges). These prices may vary depending on the gold and from one seller to the other.
• Buyback terms: It is also a good idea to examine the seller's buyback terms and find out the buyback price for gold, i.e. how much the seller would be willing to offer you if you wanted to return the gold at a later date.

What are the factors that affect the price of gold?

Foreign markets heavily influence the gold price. As India is one of the world's largest importers of gold, any changes in its price worldwide can have a considerable impact on the price of gold in the country.

Gold price is also affected by foreign exchange rates, interest rates, inflation, and Central Bank gold purchases.

Frequently asked questions