CA Siddharth Surana analyses the key policy levers in focus and what they could mean for the sector’s cost balance and competitiveness.
The Union Budget for FY 2026-27 comes at a crucial time for India’s economy, amid global uncertainty, trade disruptions, and volatile commodity prices. As policymakers look to sustain growth and competitiveness, the gems and jewellery sector is keenly watching for supportive measures.
A key contributor to exports, employment, and GDP, the gem and jewellery industry is currently navigating multiple challenges — including record-high gold and silver prices, supply-side constraints, and growing competition from lab-grown diamonds (LGDs). Against this backdrop, the industry expects targeted policy interventions in the upcoming Budget to strengthen exports, ease cost pressures, and promote domestic manufacturing.
Outlined below are five key expectations of the gems and jewellery industry from the Union Budget.
Further Reduction in Import Duties on Key Inputs
In recent Budgets, the government has taken positive steps by phasing out the Social Welfare Surcharge on gold, silver, and platinum, reducing Basic Customs Duty (BCD) from 10% to 5%, and rationalising the Agriculture Infrastructure and Development Cess (AIDC).
While these measures were well-received, the sector continues to face muted demand amid volatile global conditions. Moreover, earlier relief was largely limited to gold, silver, and platinum. With precious metal prices now at historic highs, the industry is expecting further duty rationalisation to stimulate demand and reduce cost pressures.
For diamond jewellery, the Gem & Jewellery Export Promotion Council (GJEPC) has recommended:
- Reduction in import duty on cut and polished diamonds and coloured gemstones from 5% to 2.5%, and
- Complete abolition of duty on rough gemstones presently taxed at 0.5%.
Given the sector’s substantial contribution to India’s merchandise exports, such reductions could significantly enhance global competitiveness and help exporters retain margins.
That said, with India’s gold imports continuing to rise, there is also market speculation around a possible increase in duties on precious metals, which would reverse some of the earlier concessions.
Relief for Pending Section 271G Transfer Pricing Cases
Section 271G of the Income Tax Act imposes penalties on taxpayers engaged in international or specified domestic transactions if they fail to furnish the requisite information or documents within the time prescribed under section 92D(3) of the IT Act. Such penalty under this section is imposed at 2% of the value of each international transaction or specified domestic transaction where information is not provided.
A significant challenge in certain sectors such as gems and jewellery arises from the imposition of penalties under section 271G for the non-maintenance of segmental accounts in respect of transactions with group companies versus from those with third parties. This issue persists even in cases where the transactions have been determined to be at arm’s length price.
Despite multiple rulings by the Income Tax Appellate Tribunal (ITAT) and High Courts favouring taxpayers, which have deemed the levy of such penalties as neither fair nor reasonable due to the sector’s peculiarities and practical challenges as diamonds are not standardised products, penalties continue to be imposed.
To address this, Budget 2026 is expected to provide clearer guidelines and provide relief from the strict penalty provisions under section 271G in cases where compliance with segmental accounting requirements is impractical (as diamonds are not standardised products), especially when transactions are conducted at arm’s length prices. This change would promote fairness and reduce the undue compliance burden on businesses within the sector.
Extension of Customs Duty Exemption on LGD Seeds
To support domestic manufacturing of lab-grown diamonds, imports of LGD seeds have been exempted from customs duty until 31 March 2026. This measure has helped Indian manufacturers lower production costs and compete more effectively in price-sensitive export markets.
The industry expects this exemption to be extended further, enabling manufacturers to consolidate scale, invest in technology, and strengthen India’s position in the global LGD supply chain.
Inclusion of manufacture of LGDs under the PLI Scheme
Although not yet announced, there is a strong push from industry bodies to include lab-grown diamonds under the Production Linked Incentive (PLI) scheme. If approved, this could significantly boost export capacity, attract large-scale investments, and position India as a global hub for LGD manufacturing by leveraging its existing strengths in skill, technology, and processing.
Ease of Doing Business and Export Promotion Measures
The GJEPC has also submitted a series of structural and procedural proposals aimed at simplifying compliance, improving liquidity, and enhancing export competitiveness. These include:
- Ad valorem duty drawback for gold and silver, ensuring that drawback benefits reflect rising metal prices rather than fixed rates.
- A comprehensive tax refund mechanism covering GST, BCD, and AIDC, supported by digital integration and the establishment of refund counters at airports to encourage jewellery purchases by foreign tourists.
- Inclusion of gold and platinum jewellery articles under the duty drawback scheme.
- Retrospective applicability of the ±0.01 mm height variance parameter (2014-2025) for re-imported diamonds sent abroad for certification or grading.
This proposal seeks to provide relief to exporters facing disputes due to minor dimensional variations arising from certification processes. Applying the tolerance retrospectively would help resolve legacy litigations, reduce penal exposure, and bring certainty to re-imports that are part of standard international trade practices rather than value addition.
Disclaimer
The views expressed in the article are those of the author and do not necessarily reflect the views of the GJEPC.