Monetise your idle gold

Through GMS one can earn interest on accumulated gold

With the Reserve Bank of India  issuing guidelines on Thursday to launch a gold monetisation scheme (GMS), those with such accumulation can look forward to turning their idle stock into an interest earning instrument.

Most financial planners believe that even if the instrument offers one to two per cent annually, it will still make sense for retail investors. “Many people buy gold coins, either systematically or in spurts during the festival season, which does not earn any income. Instead of keeping these at home, they can now give it to banks and earn interest on it,” says a financial planner.

The interest rate being paid will be key. To encourage holders to part with assets, most financial planners say banks will have to give an attractive rate.

The GMS will replace the existing Gold Deposit Scheme of 1999 but investors in the latter need not worry because the deposits under this will be allowed to run till maturity.

What will help consumers is lowering of the minimum deposit to 30g in the form of coins, bar or jewellery or gold, worth Rs 80,955 (Rs 26,985 per 10g on Friday). Experts believe lowering of the limit is a big help for those who could not participate in the earlier scheme, due to the minimum deposit of 500g. There is no maximum limit.

The gold will be accepted at collection and purity testing centres certified by the Bureau of Indian Standards and notified by the government. Deposit certificates will be issued by banks and the principal and interest will be denominated in gold. The opening of gold deposit accounts will be subject to the same rules with regard to customer identification as applicable to any other deposit account.

Of course, the original worry on taxation remains.

“If the gold was bought at Rs 5,000 per 10g and converted into a gold deposit scheme at Rs 27,000 per 10g, there will be a capital gains tax of 20 per cent with indexation benefits,” says a tax lawyer. If the date of acquiring is not known, April 1, 1984, will be used as the base year.

Experts believe the tax should only be imposed when gold is being sold and not when it is being converted, as is done in the case of other asset classes like property or debt.

“At the end of the day, there is no booking of profit. It is simply being converted from one form into another. So, if one is not selling to get returns, there are no gains and the tax should not be applied,” says the lawyer.

There will be three types of deposits — Short Term (one to three years) Bank Deposit (STBD), Medium (five to seven years) and Long (12-15 years) Term Government Deposit Schemes. While the Reserve Bank has not said anything about the repayment procedure, an earlier government circular had said short-term deposits could be redeemed in gold or cash; for medium-term and long-term deposits, redemption will be only in cash, in equivalent rupees of the weight of the deposited gold at the prices prevailing. The interest earned will, however, be based on the value of gold at the deposit on the interest rate as decided.

There will be provision for premature withdrawal, subject to a minimum lock-in period, and a penalty, to be determined by individual banks. All scheduled commercial banks, excluding regional rural banks, will accept gold deposits for short and long terms, and pay interest on what is deposited. The interest to be paid will be decided by individual banks.

Complaints against designated banks regarding any discrepancy in issuance of receipts or deposit certificates, redemption of deposits or payment of interest will be handled first by the bank’s own grievance redressal process and then by the Reserve Bank’s banking ombudsman.
GOLD MATTERS

• The Reserve Bank of India issued guidelines on Thursday to launch a gold monetisation scheme
• Most financial planners believe that even if the instrument offers one to two per cent annually, it will still make sense for retail investors
• To encourage holders to part with assets, most financial planners say banks will have to give an attractive interest rate
• The gold will be accepted at collection and purity testing centres certified by the Bureau of Indian Standards and notified by the government