Gold Taxfree

Interest on gold deposits may be tax-free: A 10-step guide on how monetisation works

The finance ministry has released a discussion paper on the proposed gold monetisation scheme which Finance Minister Arun Jaitley had promised in his Budget speech.

Estimating gold holding among Indian households at 20,000 tonnes, the finance minister had said that he proposes to introduce a gold monetisation scheme, which will replace both the present Gold Deposit and Gold metal Loan Schemes.

"The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account. Banks/other dealers would also be able to monetize this gold," he had said then.

The discussion paper is aimed at getting public comments on the proposed scheme. The comments can be posted on www.mygov.in, where there are already 14 comments.

Here is step by step guide of the proposed scheme:

1) Minimum quantity of gold that can be deposited is proposed to be set at 30 grams, so that even small depositors are encouraged. In the extant schemes, the minimum quantity is 500 grams. Gold can be in any form - bullion or jewellery.

2) The 350 hallmarking centres that are Bureau of Indian Standards certified will be purity testing centres for the scheme.

3) The testing centre will tell the customer the approximate amount of pure gold she has brought in. If the customer agrees, she will have to do the KYC and give the consent for melting the gold. The draft puts the time spent for this testing at about 45 minutes. This is the preliminary test and an X-ray fluorescence machine will be used for this. In case of disagreement, the customer can take back the ornament at this stage.

4) The second test - the fire assay which results in complete destruction of the ornament - is done only if the customer agrees to the preliminary test results. For this test, the ornament is cleaned by removing its dirt, studs etc and melted at the same centre. This will help arrive at the net weight of the pure gold. This will then be melted in front of the customer. This will help ascertain the purity of the metal. This will be completed in about 3-4 hours, the draft says.

5) At this stage, again the customer gets a chance to take back the ornament in case he disagrees with the findings. The only problem is that he will get the gold in bar form and not as ornament. ALso he will have to pay a nominal fee. In case he decides to go ahead with the deposit, the fee will be paid by the bank. He will also be given a certificate by the collection centre with details of the amount of gold and its purity.

6) To open a gold savings account with a bank, the customer has to produce the certificate. The bank will deposit the gold in the gold savings account. Simultaneously, the Purity Verification Centre will also inform the bank about the deposit made.

7) The bank will pay an interest to the customer, payable after 30/60 days of opening the account. The interest rate will be decided by the banks. Both principal and interest, will be ‘valued’ in gold. In other words, if a customer deposits 100 gms of gold and gets 1 percent interest, then on maturity he will have 101 gms.

8) The customer can redeem his deposit either in cash or in gold. This will have to be decided at the time of making the deposit itself.

9) The deposits should be of a minimum tenure of 1 year and in multiples of one year. However, a breaking of lock-in period will be allowed just like in cases of deposits. The customers will get exemptions from capital gains tax, welath tax and income tax.

10) The purity testing centres will send the gold to the refiners. The refiners will keep the gold in their ware-houses, unless the banks prefer to hold it themselves, the draft says. If the bank chooses to keep, it will be allowed to use the gold as its CRR/ SLR requirements. CRR is the cash reserve ratio, which mandates banks to keep 4 percent of their total deposits with banks. SLR requires banks to invest 23 percent of their total deposits in government bonds. The banks can also sell the gold in exchange of foreign currency or convert the gold into coins to sell them. They can use the gold they recieve for delivery on commodity exchanges. They can also lend to jwellers.