The gap is made of four parts

The premium is not a single number. It is the sum of import duty, the cost of landing metal in the country, a domestic premium that rises and falls with demand, and a tax charged on the purchase. This page describes each component and which of them changes from week to week. It uses no numbers.

Import duty

Import duty is the largest part of the gap. It is charged on the value of the metal as it enters the country, and it is set by the government. The duty is the same for every importer, so it does not vary from one dealer to another. It changes only when the government changes it, which does not happen often.

Because the duty is a fixed percentage, it moves the Indian price up by the same proportion as the international price. When the international price rises, the duty paid rises too, and the rupee price rises by more than the dollar price. The duty is a permanent part of the premium.

The cost of landing metal

The cost of landing metal is the expense of bringing it into the country. It includes freight, insurance, handling at the port and the cost of getting the metal to a refinery or a dealer. These costs are small compared to the duty, but they are real and they are paid on every import.

Landing costs do not change from week to week. They depend on shipping rates and insurance premiums, which move slowly. They are a fixed part of the premium, but they are not published anywhere. This site does not estimate them; it shows the premium as the difference between the benchmark and the international price, which includes all of these costs.

The domestic premium

The domestic premium is the extra that Indian buyers are willing to pay over the international price, after duty and landing costs. It rises and falls with demand. During the wedding season and around festivals, demand is high and the premium widens. During quiet months, the premium narrows.

The domestic premium is the most variable part of the gap. It can change from week to week, and sometimes from day to day. It is set by the market, not by any authority. It reflects the balance of supply and demand in the Indian market. When demand is strong and supply is tight, the premium rises.

Tax charged on the purchase

The tax charged on the purchase is the goods and services tax. It is added to the price at the point of sale, and it is charged on the total value of the metal, including the duty and the domestic premium. The tax is the same across the country, but it is not included in the benchmark price.

The association's rates are published before tax. Where this site shows what a buyer pays, the tax is added and labelled as such. The tax does not change from week to week, but it is a significant part of the final price. A buyer should always ask whether a quoted price includes tax.

Which parts move from week to week

The duty and the tax are set by the government and change rarely. The landing costs move slowly, with shipping rates. The domestic premium is the part that moves from week to week. It responds to local demand, and it can change quickly.

A reader who watches the premium over time will see it widen before festivals and narrow after them. That is the domestic premium at work. The exchange rate also moves the premium, because the international price is in dollars. When the rupee weakens, the rupee price rises, and the premium widens.

The sum of the parts

The premium is the sum of all of these parts. It is not a single number that anyone sets; it is the result of policy, logistics, demand and currency. Each part has its own rhythm. The duty changes with government decisions, the landing costs with global shipping, the domestic premium with local demand, and the exchange rate with currency markets.

A reader who understands the parts can see why the premium is not constant. It is a moving target, and it is never the same from one day to the next. The table on the gap page shows the net result, but this page explains what is inside it.

The import duty is a fixed rupee cost, but its share of the premium moves with the world price

Import duty is charged as a percentage of the value of the gold at the border. That value is the international price converted into rupees, plus freight and insurance. Because the duty is a percentage, the rupee amount collected changes every time the world price moves. When gold falls, the duty collected per gram falls with it, even though the rate has not been touched.

The share of the premium that comes from duty therefore shifts from week to week. If the world price drops sharply, the duty component shrinks in absolute terms, and the domestic premium can look larger by comparison. Readers who only watch the percentage rate miss this. The rupee cost of duty is the moving part, not the rate.

This matters for anyone trying to understand why the gap between Indian and international prices changes. A fall in the world price does not automatically mean a lower gap. The duty moves down in step, but other components may not. The result is that the premium as a percentage of the world price can rise exactly when the metal is getting cheaper.

Landing costs include freight, insurance and the cost of moving metal into a vault

Gold does not teleport from a London vault to an Indian refinery. It travels by air, and it is insured for that journey. The freight and insurance are quoted per kilogram or per ounce, and they are added to the price before duty is calculated. This means landing costs are themselves subject to import duty, which magnifies their effect.

These costs are not published as a daily rate the way the benchmark is. They are negotiated between banks, importers and logistics firms. What reaches the public is the cumulative effect: the landed cost of gold in India is always above the simple conversion of the world price into rupees, even before duty is added.

Because landing costs are sticky, they do not change with every tick of the dollar price. A bank may keep the same freight and insurance quote for a week. That makes the landing cost a small but stable part of the premium, one that is often overlooked when readers try to reconcile the domestic benchmark with the international price.

The domestic premium is the market's own addition, and it can vanish in a day

After duty and landing costs are paid, the metal is in India. At that point, the domestic market decides what it is willing to pay above the landed cost. This is the domestic premium. It is not set by any authority. It moves with local demand, with the availability of imported metal and with the eagerness of banks to sell.

The domestic premium can be negative. When demand collapses or when too much metal has been imported, dealers may sell below their landed cost to clear stock. That negative premium is not often discussed, but it is a real feature of the Indian market. It shows that the premium is a price, not a fixed markup.

Readers often assume the domestic premium is the entire gap. It is not. It is the layer that sits on top of duty and landing costs. What makes it different is its speed. Duty changes only when the government acts. Landing costs change when contracts are renegotiated. The domestic premium can move several times in a single trading session.

Tax is charged on the total of metal, duty and premium, so it compounds the gap

The goods and services tax is applied at the point of sale, and it is calculated on the final price of the gold. That final price already includes the import duty, the landing costs and the domestic premium. Tax is therefore a percentage of a number that has already been pushed up by every other layer of the premium.

This compounding effect is easy to miss. A reader might think the tax rate is the only thing that matters. But the tax amount in rupees depends on how large the underlying price is. When the premium widens, the tax collected per gram widens with it, even if the tax rate stays exactly the same.

The tax component is also the one most visible at the counter. Shops quote a final price that includes tax, and buyers see that number. What they do not see is how much of that final price is tax on the premium. The result is that the gap between the Indian gram and the international gram is wider after tax than before, and the widening is proportional to the size of the premium.

The order in which the layers are added changes who bears the risk of a price move

The sequence matters. First the world price is converted to rupees. Then freight and insurance are added. Then import duty is charged on that sum. Then the domestic premium is added. Then tax is charged on everything. Each step uses the previous step as its base. A move in the world price is therefore amplified through the chain.

This order of operations has a practical consequence. An importer who has paid duty on a high world price cannot simply reprice the metal when the world price falls. The duty already paid is a sunk cost. The importer may have to sell at a loss or hold the metal. That risk is eventually passed on to the buyer in the form of a wider premium during volatile periods.

For the retail buyer, the order means that the final price responds unevenly to changes in the world price. A fall in the dollar price may be partly offset by a rise in the domestic premium, because importers are trying to recover duty paid at higher levels. The layers do not move in lockstep, and the sequence in which they are added is the reason.