EXECUTIVE SUMMARY: Government has launched 4 new schemes related to Gold. The vision behind all these schemes is very clear to reduce the import of gold and use the idle gold lying in the bank lockers. In this article we will discuss all the details about Gold Monetization Scheme, its tax implication and should one opt for this scheme or not.
Gold is one of the oldest asset classes in the world’s economy. The love for gold among Indians is not new. Since thousands of years Gold has been used in many forms like currency, jewellery, Bars, coins, etc. Indians are known for buying jewellery and very few people invest in it in the form of bars and coins.
Till date Indian household accounts a stock of nearly about 1.81 Lakh Kilos of Gold (20,000 tonnes) which is worth over Rs.55 Lakh Crore. This gold is lying idle either in the bank locker or at home not earning any interest on it. To capitalise the same, Government has introduced Gold Monetization Scheme under which households can deposit their idle gold into bank and earn interest.
Let us discuss some key facts of this newly launched Gold Monetization Scheme:-
- This scheme will replace the prevailing Gold deposit scheme which was launched in the year 1999.
- Under new scheme investors can earn 2.25% - 2.5% of interest on their gold deposit, unlike old scheme where interest earned was 0.75% - 1%.
- Minimum deposit requirement is 30 Grams gold of 995 fineness and there is no maximum deposit limit. In the old scheme the minimum requirement was around 200 grams.
- The deposit can be in the form of Jewellery (excluding jewellery with stones and other metals), Coins, and Bars.
- The scheme can be availed under 3 different periods – Short term (1-3 Years), Medium Term (5 - 7 years) and long term (12-15 Years).
- Like Fixed Deposit Certificates are issued by bank mentioning the principal amount and interest rate and time period, the same way banks will issue Gold deposit certificates.
- Resident of India, HUF and ETF (Exchange Traded Funds) are eligible to deposit gold.
- Customer can withdraw the amount before its due maturity by paying a little penalty, only if the minimum lock in period is served.
How to deposit Gold? – The Process!!!!
Step 1 – There are more than 350 Hallmarking Centres in India that are certified by the government. The investor first needs to go to these centres with the gold, the officials at these centres will test and tell the purity of gold to the customer. If it is accepted to customer then he/she will have to fill up the KYC form to give his consent for melting of gold.
Step 2 – Then officials at the centre will melt the gold to remove the dirt and other impurities and will tell the customer the final value of pure gold. If customer agrees the centre will issue the certificate which will contain the details of amount and purity of the gold. In case customer refuses, then the centre will return the pure gold in the form of bars and will charge a fee against it.
Step 3 – Customer then will approach the bank with the certificate and in turn bank will open a Gold Deposit account.
Tax implication – Yes, the interest earned on the principle amount will be taxable and will be added into the individual’s annual income.
Should one deposit the gold into this scheme?
Yes, if gold is lying idle in the locker and is held only for investment purpose then this scheme makes sense as the invested amount will earn interest.
Considering emotional values attached with the gold, this scheme is unlikely to get deposits in the form of jewellery. Only those people who invest in physical gold in the form of bars and coins will consider this scheme. If we compare this scheme with the old scheme then definitely Gold Monetization Scheme is much better as the interest earned is higher and the minimum requirement of depositing is very less.
So, do you invest in physical gold? What are your views about this scheme? Share with us you opinion.