H&R Block – Gold Monetization Scheme and Tax Free Gold Deposit Scheme - H&R Block| Blog

H&R Block – Gold Monetization Scheme and Tax Free Gold Deposit Scheme

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Gold monetization scheme and its benefits

India is a poor country with rich people. According to the World Gold Council (GWC), an estimated 22,000 tonnes of gold are currently held in Indian households, worth more than $1 trillion which in turn is more than 50% of the country’s GDP. Similarly there are huge quantities of gold held by various temples in the country. Recently when under the orders of Hon’ble Supreme Court, the vaults of Shri Padmanabhswamy Temple, Trivendrum were opened, an estimated Rs. 1,00,000 crores worth treasure was found.

The people of India and Indian origin have an insatiable desire to hold gold. As the country itself does not have many gold mines, the gold is being imported in huge quantities. If we look at the country’s import of yellow metal in recent past, we find that, we have imported 56.5 billion worth gold in F.Y. 2012-13 & $53.8 billion in F.Y. 2013-14.This resulted into Current Account Deficit (CAD) of 4.2% and 4.8% in these two years.

To restrict the trend, the Government of India came out with various steps to curb the imports such as increasing the custom duty from 1% in January, 2012 to a record high of 10% in August, 2013, the RBI introducing a rule of making it mandatory to re-export a fifth of all bullion imports, etc. The steps had some impact and the imports reduced to $28.7 billion. in F.Y. 2013-14. But with the jewelers crying foul and artisans finding it difficult, the new government relaxed some of the restrictions and resultantly the imports surged to $ 34.4 billion in F.Y. 2014-15.

This has prompted the government to think through and hence it has come out with Gold Monetization Scheme (GMS). If a small percentage of this gold is monetized, the economic and fiscal impact would be considerable. It can reduce India’s dependence on gold imports, increase liquidity in market and boost economy. The GMS aims to bring Indian private holdings of gold into circulation and also provide gold owners with a return as also do away with storage and security risks.

The primary objectives of the gold monetization scheme are to:

1. Mobilize the gold held by households and institutions in the country.
2. Make it available to banks and jewelers.
3. Reduce gold imports.
4. Improve liquidity in market.
5. Make gold secure and a performing asset.

Presently also the State Bank of India, the country’s largest bank, takes gold from various temples under Gold Deposit scheme and gives it to the jewelers in the country. The government will like to see that even the house hold gold is brought in the system, which in turn will reduce the imports. As it is thought that the gold is an unproductive asset and blocking money in gold results in reduced funds for the development of the country.

The GMS will work as follows:

1. House hold or institution has to open gold saving account with bank.
2. Gold that customer wants to deposit will be cleaned and checked for purity at Assaying centers.
3. Assaying center will provide receipt to customer.
4. Assaying center informs bank of value to be credited to customer.
5. Gold is then sent to refineries for melting or storage.
6. Banks tell refineries to send gold to jewelers.
7. Refineries send gold to jewelers on banks information.

Given the desire of the people to hold gold in physical form and added problem of parallel economy, it is to be seen how effective the scheme will be. The government till now has announced that “Know Your Customers” norms will not be made applicable to Gold Deposit scheme there by making it more attractive. The government has also made these deposits tax free in order to lure depositors. The interest earned on these accounts would be exempt from income tax and capital gains tax as well. Still, the retrospective changes routinely being brought in these kinds of schemes deter the deposits lest the gold get blocked. It’s a good scheme from financial planning perspective as it always advisable to hold 15%-20% of total portfolio value as Gold. Gold ETF is much simpler, cost effective and convenient way to hold gold compared to the physical jewellery/Gold Coins.

The subsequent investigations in the earlier Voluntary Disclosure of Income Scheme, 1997 and the restrictions placed by Hon’ble Supreme Court in floating such schemes in future are still fresh in the minds of people. Now a days with litigations coming up and retrospective changes/ cancellations being made by the Courts in India does not inspire confidence.

The proposed scheme is aimed at monetizing idle gold held by households and institutions to provide a fillip to the gems and jewellery sector and reduce reliance on import of the metal over time to meet the domestic demand. Executing it in the right direction will be the key to success of this scheme.

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Ankita Mathur
Ankita Mathur
Ankita is a CA by qualification and a tax advisor at H&R Block. She works as a senior advisor in the GST Centre of Excellence at H&R Block. She also specializes in matters of India & US individual taxes. Her job involves helping people understand their taxes in the most simplified ways and giving them sound advise on saving taxes.

10 Comments

  1. Manju Dahiya says:

    Hi
    I need more clarification on this…could you please call me at 8447565021 any day after 03:00 PM .

    Thanks & regards
    Manju Dahiya

  2. seema r. salve says:

    Respected madam,
    pls. give me guidence regarding gold deposit scheme

    wether can we make FD of gold jwellary of min. 30 gms to earn interest
    if yes pls. give the name of bank

    • HRBlockIndia HRBlockIndia says:

      Hi Seema Salve,

      Yes you can make a deposit of 30 gms of gold with any bank that has participated in this scheme. You will need to enquire with your bank if they offer this facility.

      You can receive an interest of 2% on the amount of gold deposited.

  3. Priyanka Hiremath says:

    Hi Team,

    I would like to know about the Gold scheme further. Please contact me at 9986972727 after 5 pm.

    Thanks and Regards,
    Priyanka.

  4. Naveen Ghar says:

    hi team,

    i would like to have a quick question-
    is this gms scheme any different and fruitful from directly selling our ornaments to the jewellers? Through this scheme we would need to incur charges for gold purification test and later the bank would sell our gold in the market so why not we directly sell our gold if at all we have to sell it ?

    please clarify

    • HRBlockIndia HRBlockIndia says:

      GMS is a scheme that gives you 2% interest on your gold reserves deposited under this scheme. Selling your gold in the market and taking advantage of the ruling market prices is a good option also.

  5. ANNAM NARAYANA SWAMY says:

    Dear Madam,

    I would like deposit gold in SBI where am having same in the locker. Kindly suggest for continuing both GMS and Locker faciity at a time in the same bank with any further modification or taxation in future.

    Regards

    A.N.SWAMY

  6. shivanagouda says:

    Hi Team , i would like to know more about gold deposit , would you please contact me on 9972044449.

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