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Tax-free returns on gold deposits proposed

As you may recollect, a couple of months back I had mentioned why "consuming" gold is bad for the Indian Economy and how our Finance Minister Shri Arun Jaitley plans to save India from gold-obsessed Indians.

One of the measures proposed, in the Union Budget for the FY 2015-16, was the Gold Monetization Scheme wherein you could deposit your gold with the banks and earn interest on it.

Accordingly, the Govt. has now announced the Draft Scheme for monetizing gold and has invited people to give their views on the same till June 2nd. Based on the feedback received, the Gold Monetization Scheme would be finalized.

Salient features of this Draft Scheme are discussed below.

Minimum Deposit
The scheme proposes to cover even those with marginal gold holdings. As such the minimum quantity of gold that you can deposit has been fixed at 30 gms. This can either be in the form of jewellery or bullion.

Tenure
Tenure of gold deposit would be minimum one year and in multiples of one year thereafter.

Redemption
You can redeem your deposit either in gold itself or even in cash. However, this option would have to be excerised at the time of making the deposit.

Interest
The interest rate on Gold Monetization Scheme, payable after 30/60 days, is left to the discretion of banks. However, both the principal and interest would be ‘valued’ in gold. Therefore, if you deposit 100 gms of gold and the interest is 1 per cent, on maturity your account will be credited with 1 gm of gold.

Tax Free Returns
Your returns from the gold deposit — whether in the form of capital appreciation or interest income — would be EXEMPT from tax. In other words... No Income Tax. No Capital Gains Tax.

Procedure
As you may be aware, 'Hallmarking Centres' that are certified by the Bureau of Indian Standards (BIS), are engaged in testing the purity of gold. Presently, there are 350 such centres spread across the country. These have been designated as Purity Testing Centres for the Gold Monetization Scheme.

So when you take your gold for depositing with a bank, they would arrange with a Purity Testing Centre for preliminary XRF-machine test. Based on the same, the approximate amount of pure gold in your jewellery would be conveyed to you. If you are Ok with it, you can give your consent to melt your gold. However, if you do not agree with the assessment, you can take back your gold. This process is expected to take around 45 minutes.

Once you agree, the studs, meena etc. in your gold products would be removed and given to you. After cleaning, the net weight would be ascertained. Thereafter the gold product would be melted and through a fire assay the purity would be determined. You can be present and witness this whole process, which may take about 3-4 hours. 

Again you have two choices. If not happy, you can take back your melted gold in the form of a bar by paying a small testing fee. If you are OK, the Purity Testing Centre will keep the gold and issue you the Certificate mentioning the amount of gold deposited and its purity (in this case the testing fee would be paid by the bank).

Based on this certificate, the bank will open your Gold Savings Account and credit the quantity of gold deposited to the same.

Utilization of gold deposit
- Banks can lend the gold so mobilized to the jewellers
- They can convert it into gold coins for sale to the customers
- The gold could be sold to buy foreign currency to meet the requirements of importers / exporters
- Banks can buy / sell this gold on the domestic commodity exchanges
- It is also being explored whether banks could be allowed to deposit the gold so mobilized as part of their CRR/SLR requirements.

Given the requirement of an extensive infrastructure for assaying, refining and handling gold, the scheme would initially be launched in a few cities only and extended to other cities as the required infrastructure develops.

Through the scheme, the Govt. proposes to mobilize the huge quantity of gold held by the individuals, trusts and other institutions in India so that the dependence on imported gold to meet the domestic demand can be reduced. Also, banks can lend this gold as raw material to give a boost to the gems and jewellery sector.

In short, gold will no longer be a dead investment for you, nor would the Indian Economy suffer on account of your excessive love for gold.

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