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June 8, 2018

Gold Monetisation Scheme

Last Update Date : September 11, 2018

Gold Monetisation Scheme

Finding ways to save tax? How would it sound if the gold in your cupboard starts to generate income which is not taxable? Surprised? Yes, it is possible if you put it into the safe custody of banks under the Gold Monetisation Scheme. Gold Monetisation Scheme is the revamped version of the Gold Deposit Scheme and the Gold Metal Loan Scheme which enables you to generate interest income on your idle gold and put it to productive use. Also, the interest and capital gain are not chargeable to tax. Therefore, knowing the scheme would pay better. Refer this guide of H&R Block to learn about it.

What is Gold Monetisation Scheme?

Gold Monetisation Scheme is similar to a Savings Bank Account Scheme where a resident individual can deposit his gold in the metal account and earn interest on it. The gold can be in any form be it jewellery, bars, coins or bullion. But it might be possible that the gold on maturity may not be received in its original form. The deposit of gold is denominated in grams. The rate of interest for such deposits is determined by the designated banks which are authorised to implement the scheme by the Reserve Bank of India.

Objectives of the Scheme

  • The main objective of introducing the scheme was to bring out and put to productive use around 20,000 tonnes of idle gold lying with Indians which was neither traded nor monetised.
  • Another major objective was to cut down the country’s gold imports and reduce the domestic demand as India, incidentally, is the second largest consumer of gold after China.
  • The scheme is also aimed at enabling the jewellers to obtain loan in their Metal account.

How Does the Scheme Work?

  • The gold procured by the customers is tested and the purity of gold is determined.
  • The exact quantity of gold brought in by the customer is credited to his metal account.
  • The customer may be required to complete the KYC process.
  • The gold deposited will now be lent by the banks to the jewelers.

How is Interest Calculated under Gold Monetisation Scheme?

The interest to be paid to the customer on his gold deposits is ‘valued’ in gold only for short-term deposits. However, this interest is paid to the customer in cash itself. The customer has the option to withdraw only the principal amount in the form of gold or cash at his choice which has to be defined at the time of making the deposit.

For example: If Mr A deposits 100gms of gold @ 1% p.a. The maturity proceeds would be valued at 101gms of gold. However, the customer would be paid 100gms in the form of gold and the 1gm value of gold would be paid in cash. The customer has the option to redeem the whole 101 gms in cash.

Tenure and Quantum of Deposits

The minimum tenure to make gold deposits is 1 year. And the minimum deposit is set to be just 30 gms to encourage even the small deposits.

The tenure for the Gold Monetisation Scheme is divided into the 3 categories:

Category Lock-in-period
Short-term 1 year
Medium-term 3 years
Long-term 5 years

However, the deposit can be withdrawn at any time during the year at certain pre-mature penalties.

Why Should you Invest in the Gold Monetisation Scheme?

  • Fair rates of interest: The gold deposit fetches attractive rates of interest between 0.5% and 2.5% depending upon the period of deposit.
    The interest rate for short-term deposits is determined by the designated banks whereas for medium and long-term deposits, it is determined by the Central Government.
  • Convenient tenures: The period of tenure varies from a lock-in of one year to 5 years. The depositor can make deposit for any such period depending upon his convenience.
  • Flexibility in deposits: The gold under this scheme can be deposited in any form, jewellery, bars, etc. Also, the minimum quantity is just set to be just 30gms to encourage even the smaller deposits.
  • Safe custody: The idle gold kept at home is always unsecure and has a danger of theft. The gold deposited under the scheme is into the safe custody of registered bank which can be withdrawn any time at pre-mature penalties.
  • Purity verification: The gold is tested and the purity is verified at various Collection and Purity Testing Centres (CPTC) authorised by the government. The gold is brought to a purity of 995 and then credited to the customer’s account. Further, at the time of redemption the customer is paid in gold (which may not be in its original form) at the same purity level of 995.
  • Creates utility: The jewellery which you don’t want to wear can fetch you interest. Deposition of such gold which is kept idle at home creates utility with these deposits. The gold in the Metal account is also lent to the jewellers by charging them the interest on such borrowings.
  • Variety in interest calculation: The interest on short-term deposits is valued in gold whereas on medium and long-term deposits it is valued in INR based on which the customer can plan his deposits.

Tax Implications

The capital gain made by appreciation in gold price at the time of maturity is not chargeable to tax. Also, the interest income on such gold deposits is exempt from tax as per the provisions of the Income Tax Act. Hence, the income on such metal account does not attract any tax.

Eligibility for Making Deposits

  • Any resident Individual, HUF, Trust including Mutual Funds / Exchange Traded Funds or a Company can have a Metal account under the scheme. The rules and laws governing the KYC on a Savings Bank Account will only follow.
  • Any person mentioned above is required to have a Savings Bank / Current Account with the same bank in order to make gold deposits.

Frequently Asked Questions

1. Will I get my gold in the same form as was deposited?

Ans: No. The gold deposited is melted and assayed to be traded in the form bars and coins. At maturity or withdrawal you might get coins or bars at 995 purity level.

2. Where do I need to deposit the gold?

Ans: The gold is taken for purity testing and deposited at the Collection and Purity Testing Centres (CPTC) authorised by the Government. The CPTC issues a certificate which is then needed to be taken to the bank’s branch. The bank then credits the gold in the customer’s Metal account.

3. Will I get interest in the form of gold?

Ans: No. The interest on short-term deposit is only valued in gold. However, it is paid to the customer in INR itself.

4. How will be the value of gold determined at the time of maturity?

Ans: At the time of maturity, the price would be determined based upon the credits or grams of gold in the customer’s metal account at the rate of gold prevailing on the day of maturity.

5. When will interest on my Metal account start to accrue?

Ans: The interest will start to accrue after 30 days from the date of receipt of gold at CPTC as the refinement and conversion takes time for gold to convert it into tradable form.

Gold Monetisation Scheme is a great tax saving opportunity for persons holding idle gold in their inventory. The scheme enables such individuals and eligible persons to earn tax free interest and capital gains. And as rightly said, an investment in knowledge pays the best interest. Therefore, knowing about the scheme would anyways pay better.Gold Monetisation Scheme is a great tax saving opportunity for persons holding idle gold in their inventory. The scheme enables such individuals and eligible persons to earn tax free interest and capital gains. And as rightly said, an investment in knowledge pays the best interest. Therefore, knowing about the scheme would anyways pay better.

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