India's passion for gold, seen by many as a hedge against persistently high inflation, has contributed to a rise in its current account deficit, which reached an all-time high of 5.4 percent of gross domestic product in the July-September quarter.

The shortfall has increased India's need for foreign capital inflows and evoked memories of the 1991 balance of payments crisis, when the central bank sent 47 tonnes of gold to Europe as collateral for a loan to avert a sovereign default.

"It is difficult to establish the impact (of the tax) on CAD (current account deficit) and by how much it will come down, but there will be some moderation in gold demand," Economic Affairs Secretary Arvind Mayaram told reporters.

Demand has declined only modestly so far following a 13 percent rise in domestic gold prices last year and some higher taxes.

India vies with China as top global consumer of gold, and the level of its imports can have a significant impact on global prices.

Industry officials predicted only a moderate drop in imports from the higher tariff.

"The government's revenue will increase, but imports won't diminish," said Mohit Kamboj, president of the Bombay Bullion Association.

Gold on the Multi Commodity Exchange rose as much as 0.9 percent to 30,847 Indian rupees ($570) per 10 grams after the announcement, before trading at 30,754 rupees.

India's imports fell 8 percent to 185 tonnes in the quarter to end-September, when traders stock up for the season of festivals and weddings, from the year-ago quarter.