Gold Monetization Scheme-Earn Tax-Free interest from your Gold

You will not agree, but studies showed that Gold is more volatile than stocks and give you a return of Debt products. However, whatever studies say, we Indians are fond of Gold. Just utilize the huge idle Gold with Indians, Government of India about to launch the Gold Monetization Scheme. Let us see its feature.

Gold Monetization Scheme

What is Gold Monetization Scheme?

If you have idle gold in any form, then you can utilize this scheme to earn the tax-free interest on such deposited gold. However, the format will change and they melt the gold once you agree to deposit.

What is the process?

1) Purity Verification and Deposit of Gold

  • You visit the purity testing centres with your Gold for the preliminary purity test. Currently, there are around 350 Hallmarking centres that are BIS certified.
  • These purity-testing centres conduct a preliminary XRF machine-test. Based on the result, they inform you the approximate purity of Gold.
  • If you agree to the valuation shared with you then you have to fill up the Bank/KYC form and give consent for melting the gold.
  • If you do not agree, then you can take back the gold at this stage itself. Usually, the time spent on this test will be around 45 minutes.
  • Once you have agreed to deposit the gold, then the same testing centre will start the process of melting.
  • The gold ornament will then be cleaned of its dirt, studs, meena, etc. The studs will be handed over to you there itself.
  • The net weight will be told you after the removal and will be informed to you.
  • Then in front of you, the jewellery will be melted and through a fire assay, its purity will be ascertained.
  • These centres provide you a viewing gallery. The whole process can be seen from these galleries.
  • Usually, the whole process will not take more than 3-4 hours.
  • Once the fire assay report told to you, then again, you have option either to agree with the result or stay away. If you do not want to deposit at this stage, then you have to take away the MELTED GOLD and pay the necessary fee to the centre.
  • However, if you agree to deposit the gold, then no need to pay the fee. The Bank will pay the fee to purity centre.
  • If you agreed to deposit the gold, then the purity centre will issue a certificate to you. This will give you information about the amount of gold deposited and purity of such gold.
  • The minimum quantity of gold you can deposit is set at 30 grams.

2) Opening of Gold Savings Account with Banks

  • Once you produce the certificate issued by gold purity centre, the bank will open the “Gold Savings Account”. Immediately the bank will credit the QUANTITY of gold into your account. At the same time, gold purity testing centre will inform to bank about the quantity and purity of gold deposited with them.
  • Banks will credit interest usually after 30/60 days of account opening.
  • The rate of interest will be fixed by individual banks.
  • Both the interest and principal will be valued in terms of gold. For example, if you deposited 200 grams of gold and earned 2% interest, then the balance will be shown as 204 grams.
  • The minimum tenure of this deposit will be 1 Years. However, you can break this deposit at any point of time (I think banks will charge some penalty if you break the deposit before maturity).
  • At the time of redemption, you can either withdraw it in terms of gold or cash. However, you have to mention the form of redemption you want during the time of deposit ONLY.

What will be the tax benefit of the Gold Monetization Scheme?

This deposit will be free from Capital Gains Tax, Wealth tax and Income Tax. Hence, the interest earned on this scheme is also tax-free.

Whether you proceed to deposit?

1) Even though this scheme is launched with good intention, but I still say failed to understand the mentality of Indians. Because, we deposit the gold in the format which we are currently holding. However, in this scheme the biggest negative point is MELTING OF GOLD. Hence, I feel many individuals will stay away from this scheme only because of this feature.

2) Even though this scheme offers you tax-free interest, the rate of interest may be around 1% to 2%. Hence, I do not think many will feel it as an attractive option.

3) Considering the population of India, I felt it is too less of having only 350 purity testing centres.

4) Many of us holding the gold since our ancestors and never had a receipt or proof of buy. Along with that, many of us are not paying any wealth tax on this gold. In such a situation, if this scheme asks us to produce the receipt or source of buying the gold or the historical tax paid, then I do not think the majority of Indians will deposit their gold.

5) Many of Indian gold jewellery buyers, especially the rural population buy gold without knowing the purity or hallmark of gold. In such a situation, no individual will deposit into such scheme when he sees the negative value of his buying price. Even though there are strict rulings on a purity of gold, we find gold buying in rural areas is without looking at such hallmark.

6) The expenses of making charges and wastage of any gold ornament range from 5% to 10%. In such a situation, if one tries to deposit the gold into this scheme then he has incurred the cost of making charges once again at the time of redemption. This makes a costly deposit for an individual, especially to those who have the idle gold in the form of jewellery and want to convert the deposited gold into jewellery once again.

I felt this scheme, launched with few positive intentions, but with many more negative points, which ideally not suited to Indians.

16 Comments

  1. Gold price is lowering. Is it a good time to buy Gold ETF. I have HDFC demate account. Is it a good platform for buying Gold ETF

    Reply
      • Truely I do not know. I just want to experience it. I thought it will be better to by Gold ETF than buying a Gold Bar. Thats why I am asking you for your recommendation.

        Thanks

        Reply
        • Manash-But do you know Gold is equally volatile like equity market but provide you return of Bank FD?? If it is investment, then my advise is to stay away.

          Reply
  2. No one will melt their gold jewellery…… if someone has gold in form of gold bars or biscuits then they wont mind melting the gold……. again proof of purchase will be a problem…….

    Reply
  3. Nice article. I think you have dealt with all the issues clearly.

    Completely agree.

    Reply
  4. Hi Mr.basu after a long time iI am chatting with you. As usual ur article is very informative and first to give full details about d scheme. After reading ur article What I understood was this scheme is meant for those who have invested in gold biscuit or dollar form I.e in purest form but not for those who bought in jewellery form for personal use.
    Instead of keeping idle in locker getting something return out of that which is also safe, tax free & again in gold form is really a good positive feature.
    one point I didn’t understand was should we provide all details & reciepts of d gold that we r depositing in bank?
    If so yes then many ll stay back as most of them r not having proper bills and might have invested unaccounted money in buying gold.
    Let’s see how this scheme works out for us.
    Thanks basu for enlightening us.

    Reply
    • Sudheer-Yes, your understand is correct about to whom this is beneficial. As of now there is no clarity whether one must product the purchase bill or source of gold at the time of depositing. Let us see how they formulate the rules.

      Reply
  5. For me, its a good scheme.. 🙂 as I have a habit of buying small amount of raw gold every month as an investment. So its a good option for me to deposit gold in bank (Safe) and earn interest (income) on idle gold.

    Reply
    • Deepa-Then go ahead 🙂 However, do you feel it is a right INVESTMENT to buy physical gold? Think and decide.

      Reply
  6. Sir –

    What is your personal opinion i.e what will you have done?

    Keep the gold at home not earning any interest or invest in this scheme? What will be beneficial in the long run?

    Regards

    Reply
    • BRR-First of all, I am against the INVESTMENT of Gold. Second thing, if you bought it for investment purpose then I feel this is good. However, if you bought it for personal usage then I think it is not worth to go for this scheme.

      Reply
  7. Hi Basu,

    Nice article. Majority of people don’t agree for melting their gold jewellery.

    In case by chance someone finds gold treasury in their backyards/farm land then gold saving account is best option 😛

    Regards,
    Kirthan

    Reply

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