In a bid to curtail India’s excessive dependence on gold import, the Ministry of Finance has come out with a Gold Monetization Scheme (GMS) which will enable households and jewelers to keep their gold with the banks and earn interest on it. The Finance Ministry intends to replace GMS with the Gold Deposit Scheme.
Gold collected from consumers will be sent to check the purity of gold. The gold will be converted into bars. This process may take over 5 hours, states the draft policy. The minimum cost for checking purity is Rs.500. The cost incurred in this process will be borne by banks if depositors agree to open GMS. The minimum quantity of gold one can deposit is 30 grams.
The scheme will be distributed through banks and they will decide the interest rates. Banks will pay interest after 30 to 60 days.
Vishal Dhawan of Plan Ahead Advisors believes that the success of this scheme would largely depend on the interest rate offered by banks. Banks were paying 0.75% -1% per annum in the Gold Deposit Scheme.
Depositors can opt for redemption either in cash or gold which they have to decide at the time of making the deposit. The minimum tenure of the deposit will be 1 year. One can withdraw gold before this lock in period.
Suresh Sadagopan of Ladder7 Financial Advisories says, “Indians have an emotional attachment with gold, it will be very difficult to make them participate in this scheme unless they are in need of money.”
The tax-exemption in this scheme is likely to be similar to the Gold Deposit Scheme. In this scheme, the interest earned on gold deposits was exempted from tax. Also, there was no wealth tax and capital gains tax on deposit and sale of gold units respectively.
To encourage banks to make the most of this scheme, the government has proposed that banks will be allowed to use these deposits to meet their CRR or SLR requirements. They can also sell the gold to generate foreign reserves.
The draft rules are open for public feedback at https://mygov.in/ till June 2 following which the final rules of GMS will be framed.
