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Tax Free Gold Monetization Scheme Gains and More

Now you can save capital gains tax and also earn interest on your "dead" gold.

Gold Monetization Scheme offers you tax-free income on your gold jewellery, bars and coins.

First announced in Sept 2015, the Scheme (which is a revamped version of the existing Gold Deposit and Gold Metal Loan Schemes) has now been a given a marginal makeover.

Salient features of the Gold Monetization Scheme (as amended in Jan 2016) are briefly summarized below.

Gold Monetization Scheme aims
a. to mobilise the gold lying idle in our homes and temples,
b. so that it can be put to productive use, and
c. reduce India's dependence on imported gold.

The Scheme would be available at various banks designated by the RBI. 

Type and Quantity of Gold
- Bars, coins and jewellery (excluding the stones and other metals)
- Minimum : 30 grams at any one time
- Maximum : No limit

Eligible Persons
- Resident Individuals, HUFs, Proprietorship & Partnership firms, Trusts, Mutual Funds, Exchange Traded Funds  
- Joint deposits of two or more eligible depositors also permitted

Short Term Bank Deposit
Period : 1 to 3 years (facility to rollover in one-year multiples)

Principal : Denominated in grams of Gold
Interest : Also denominated in grams of Gold

Interest Rate : Each bank is free to decide the rate of interest on such gold deposits

Redemption : Either as gold or in equivalent rupees (as per your 'irrevocable' choice made at the time of making the deposit)

Premature withdrawal : Each bank is free to frame the rules

Medium and Long Term Government Deposits
Period :  Medium Term - 5 to 7 years. 
              Long Term - 12 to 15 years.

Principal : Denominated in grams of Gold
Interest : In Rupees and calculated on the value of gold at the time of deposit

Current Interest Rate : Medium Term - 2.25% p.a. 
                                     Long Term - 2.50% p.a.

Redemption : Only in equivalent rupees (Principal based on price of gold at the time of redemption; Interest is anyway calculated in Rupees)

Premature withdrawal : Permitted after minimum lock-in of 3 years (Medium Term Deposits) and 5 years (Long Term Deposits)

Medium Term Deposit
Applicable rate less 0.375% (if withdrawn between 3 to 5 years) 
Applicable rate less 0.25% (if withdrawn between 5 to 7 years)

Long Term Deposit
Applicable Medium Term Rate less 0.25% (if withdrawn between 5 to 7 years)
Applicable Long Term Rate less 0.375% (if withdrawn between 7 to 12 years)
Applicable Long Term Rate less 0.25% (if withdrawn between 12 to 15 years)

Jump wholeheartedly at the Gold Monetization Scheme with your eyes closed.

Gold Deposit Account
If you already have any other account with the designated bank, you can open a Gold Deposit Account, by complying with the same rules as applicable to any other normal deposit. For those with no earlier accounts, zero balance Gold Deposit Account can be opened based on complying with the KYC norms as applicable.

The said account would be denominated in grams of gold. Bank will credit your account with equivalent grams of standard gold of 995 fineness (up to three decimals of a gram) based on the actual gold deposited by you.

The gold has to be deposited at the Collection and Purity Testing Centres (CPTC). However, banks, at their discretion, may accept gold at branch itself or allow the deposit to be made directly at the refiners (this is mainly for the large depositors).

Process of Depositing the Gold
For verifying the purity and depositing the gold, you have to visit CPTC where a BIS-certified protocol would be followed.

Step 1 First, an XRF machine test and weighing of your article would be conducted. This would tell you the approximate purity of your gold article. If acceptable, you can give your consent for melting. If not, you can take back your gold. (A nominal fee would be charged to you for this test.)

Step 2 Gold, consented for melting, would first be cleaned of its dirt, studs, meena, etc. While the studs, etc. would be returned to you immediately, the article would again be weighed after this cleaning process. Thereafter, gold would be melted in fire assay and its true purity determined. (By the way, this process may take 4-5 hours.)

Step 3 After the fire assay test, you still have the option to take back your gold (again, on payment of the prescribed fees) if you are not Ok with the results. However, if you agree to deposit the gold, the Centre will issue you the certificate for the gold deposited in equivalent quantity of 995 fineness Standard Gold

Step 4 Based on this certificate, the bank will credit your Gold Deposit Account

(Note: Banks are free not to subject the standard good delivery gold, accepted directly at branches, to fire assaying at the CPTC.)

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Transfer of gold to refiners 
Banks can either hold these gold deposit themselves or transfer it to the refiners for safekeeping at their warehouse. Any fee payable to the refiners, would be borne by the banks. In this connection, there will be a tripartite agreement between the Bank, Refiner and the Collection and Purity Testing Centre.

Utilization of gold
Short-term deposits : Banks can (a) sell or lend the gold to MMTC for minting the Indian Gold Coins, (b) sell or lend it to the jewellers or (c) sell it to other banks designated under the Gold Monetization Scheme.

Medium and Long-term deposits : In addition to the above options for short-term deposits, the gold deposits can be auctioned by MMTC or any other authorized agency.

Gold Monetization Scheme is exempt from Income Tax, Wealth Tax and Capital Gains Tax.

Important: In other words, capital gains on your physical gold would be taxable. Whereas, if you monetize your gold, you have the opportunity to earn TAX FREE capital gains. Plus, of course, the extra interest income which is zero for the physical gold. 

Besides, banks are also advised to inform the depositors that as per instructions No.1916 dated 11, May 1994 issued by the income tax authorities, the following guidelines on seizure of gold would apply
(i)  For wealth tax assessees, only the gold in excess of that declared in wealth tax returns can be seized.
(ii) For non-assessees, gold jewellery and ornaments up to 500 grams for per married lady, 250 grams per unmarried lady and 100 grams per male person of the family cannot be seized.  
(iii) The Authorized Officer can exclude even larger quantity of gold from seizures, as he may deem fit, based on the circumstances of the case. This would be duly reported to the Director / Commissioner concerned.
(iv) A detailed inventory, of all gold jewellery and ornaments found, should be prepared.

This, in brief, is how you can deposit your idle gold and earn tax-free interest — and tax-free capital gains — under the Gold Monetization Scheme.

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