Gold is a physical asset that Indians have been buying for ages. This is mainly because it is the only way to save money without getting any returns and it is also seen as a safe investment during times of economic and political instability. India’s love for gold is so strong that it now accounts for a whopping 76% of the global demand for precious metals. This has led to Indians owning 20,000 tonnes of gold worth a record $1.16 trillion which is actually Rs 8,81,36,80,50,00,000, according to the World Gold Council (WGC). In fact, Indians currently hold 20,000 tonnes of gold—the second-highest total after China. Indians are big fans of gold. More specifically, they have a lot of it. And that love of gold has consequences for the country’s economy. For one, it makes the rupee more volatile.
In Indian households, over 20,000 tonnes of gold is lying idle. To turn this unused gold into a productive asset, the Government of India launched the Gold Monetisation Scheme (GMS). This scheme was announced by the Government of India vide its Office Memorandum F.No.20/6/2015-FT dated September 15, 2015. The objective of the Scheme is to mobilise gold held by households and institutions of the country and facilitate its use for productive purposes, and in the long run, to reduce country’s reliance on the import of gold.
The Gold Monetization Scheme (GMS) is a revamped version of two older schemes, the Gold Deposit Scheme and the Gold Metal Loan Scheme. The GMS was first announced by the government in November 2015, with some modifications made in September 2016. The scheme is expected to provide a fillip to gold investments in India, and also aims to reduce the country’s current account deficit. Under this Scheme, gold deposit holders will be able to earn interest rates up to 2.5% per annum.
Revamped Gold Deposit Scheme:
The gold is accepted at the Collection and Purity Testing Centres (CPTC) certified by the Bureau of Indian Standards (BIS). The deposit certificates are issued by banks in the equivalent of 995 fineness of gold. The designated banks (ICICI Bank, Corporation Bank/Union Bank of India, Indian Overseas Bank, Punjab National Bank, State Bank of India, HDFC Bank, Yes Bank, Dena Bank/Bank of Baroda) accept gold deposits under the Short Term (1-3 years) Bank Deposit (STBD) as well as Medium (5-7 years) and Long (12-15 years) Term Government Deposit Schemes (MLTGD). While the former is accepted by banks on their own account, the latter is on behalf of the Government of India.
Interest: The amount of interest rate payable for deposits made for the short-term period is decided by the banks on the basis of the prevailing international lease rates, other costs, market conditions, etc., and the same is borne by the banks. For the medium and long-term deposits, the rate of interest is decided by the government, in consultation with the RBI from time to time and the same is borne by the Central Govt.
Redemption: For short-term deposits and MLTGD, the customer will have the option of redemption of the principal at maturity in an Indian rupee equivalent to the value of deposited gold at the time of redemption or in gold. However, any pre-mature redemption of MLTGD will be in INR only. In the case of STBD, any pre-mature redemption shall be in Indian rupee equivalent or gold at the discretion of the designated bank. In case of redemption in gold, any fractional quantity (for which a standard gold bar/ coin is not available) would be paid in cash. Interest in respect of STBD and MLTGD shall be denominated and paid in Indian rupee only.
Tax implications on GMS shall be notified by the Central Government from time to time. However, it is clarified that Tax exemptions, same as those available under GDS, would be made available to the customers, in the revamped GDS, as applicable. In this direction, the enabling notifications issued by GOI are:
(a) Exemption of interest earned on gold deposit bonds from Income Tax vide amendment to section 10(15)(vi) of the Income Tax Act by Finance Act 1999.
Exemption of various assets deposited in the scheme from Wealth Tax under Section 2(a) of Wealth Tax Act as amended by Finance Act 1999.
(b) Exemption from capital gains made on the bonds though trading or at redemption from Capital Gains Tax under section 2(14)(vi) of Income Tax Act as amended by finance Act 1999.
Further, as per CBDT instructions No. 1916 dated 11th May, 1994 in course of IT Search u/s 132, gold jewellery to the extent of 500 gms per married lady, 250 gms per unmarried lady and 100 gms per male member of the family, need not be seized by the authorities, but the tax penalties, as applicable will be levied.
Revamped Gold Metal Loan Scheme:
Gold Metal Loan Account: A Gold Metal Loan Account, denominated in grams of gold, will be opened by the bank for jewelers. The gold mobilized through the revamped GDS, under the short-term option, will be provided to jewelers on loan, on the basis of the terms and conditions set-out by banks, under the guidance of RBI.
Delivery of gold to jewelers: When a gold loan is sanctioned, the jewelers will receive physical delivery of gold from refiners. The banks will, in turn, make the requisite entry in the jewelers’ Gold Loan Account. Interest received by banks: The interest rate charged on the GML will be decided by banks, with guidance from the RBI.
Tenor: The tenor of the GML at present is 180 days. Given that the minimum lock-in period for gold deposits will be one year, based on experience gained, this tenor of GML may be re-examined in future and appropriate modifications made, if required.
Indian Gold Coin:
The Indian gold coin is a part of the Gold Monetisation Programme. The coin is the first-ever national gold coin minted in India and has the National Emblem of Ashok Chakra engraved on one side and Mahatma Gandhi on the other side. The coins are available in denominations of 5, 10 and 20 grams. The Indian Gold coin & bullion is unique in many aspects and carries advanced anti-counterfeit features and tamper-proof packaging. The Indian Gold coin & bullion is of 24 carat purity and all coins & bullion are hallmarked as per the BIS standards.
Who are eligible:
- Resident Indians [Individuals, HUFs, Proprietorship & Partnership firms, Trusts including Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations, Companies, charitable institutions, Central Government, State Government or any other entity owned by Central Government or State Government] can make deposits under the scheme.
- Joint deposits of two or more eligible depositors are allowed and deposits in such cases shall be credited to the joint deposit account opened in the name of such depositors. The existing rules regarding the joint operation of bank deposits including nominations will be applicable to gold deposits.
What Benefits will you get?
- You have the opportunity to earn interest for your idle gold coins, gold lying in your locker, house, trust, or any other jewelers lying in your locker.
- Your gold will be securely maintained by the bank. This means you are Saving on locker charges presently used for storing gold
- Gold accepted can be in the form of bars, coins, and jewelry
- Earnings are exempt from capital gains tax, wealth tax, and income tax. There will be no capital gains tax on the appreciation in the value of gold deposited, or on the interest, you make from it.
- Banks have tie-up with renowned Refiners who will help you check your gold’s purity and assess the gold in front of you.
How can you enroll for Gold Monetisation Scheme (GMS):
The Bank where you have an account:
- For Existing Savings/Current accounts, you can walk into any of the designated branches with your gold. Fill in the GMS Application Form. Branch executives will guide you toward Refiner’s Purity Testing center coordinates.
- For Existing Savings/Current accounts there will be walk-in to the Refiner’s Purity Verification and testing Centre. Tender the Gold and the same will undergo the assaying and melting process. Purity Verification and testing Centre will give you a deposit receipt containing the Gold quantity with purity 995.
- Submit the Purity Verification and Testing Centre’s receipt to the designated branch in person or through the post, within 7 to 30 days (Depending on banks).
- Branch to create a gold deposit on the 30th day from the date of receipt of gold at the Purity Verification and testing Centre and issue a Gold deposit certificate giving gold quantity, purity, tenure, interest rate, and maturity date.
- Customers will receive deposit certificates through courier as well as on registered e-mail id with details of gold quantity, purity, and scheme details.
- Non-Bank customers, customers can open a Savings/Current Account with the bank and opt for Gold Monetization Scheme.
Other details of the Gold Monetisation Scheme:
- Deposit Quantity: Minimum: 10 grams and Maximum: No Limit
- Purity: 995 fineness
- Medium Term Government Deposit (MTGD)
- Long Term Government Deposit (LTGD)
- Medium Term Government Deposit (MTGD)
- Medium Term Government Deposit (MTGD):
- Period of 5 – 7 years
- ROI: 2.25% p.a.
- Lock in Period – 3 years
- Long Term Government Deposit (LTGD):
- Period of 12 – 15 years
- ROI: 2.50% p.a.
- Lock in Period: 5 years
- Whole or part premature withdrawal is allowed subject to such minimum lock-in period and penalties.