EGRs can unlock household gold while keeping costs lower for taxpayers

Electronic Gold Receipts could unlock idle household gold, offering income opportunities while reducing import dependence without burdening taxpayers

In 2001, our client Mangal bought one kilogram (kg) of gold coins for ₹4 lakh — savings held in a form she trusted. By 2015, they were worth ₹27 lakh, sitting in a locker, earning nothing. She asked us what she should do with them. 

Mangal’s story is not unusual. For Indian families, gold is security, tradition, emergency money, and peace of mind. But what makes sense for a family like hers hurts the nation. Almost all new gold bought in India is imported, using foreign exchange and locking savings into an asset that protects families but builds nothing productive. Without gold imports, India would have had a current-account surplus, not a deficit. 

In 2015, the government tried to square this circle with two schemes. The Gold Monetisation Scheme (GMS) let households deposit physical gold and earn interest. Sovereign Gold Bonds (SGBs) let them invest in gold without holding it physically, again with interest. Mangal looked at both. 

On paper, the GMS looked perfect for Mangal. Her coins had risen from ₹4 lakh to ₹27 lakh, and the ₹23 lakh gain would be tax-free on conversion. She would also get tax-free interest and maturity gains. But the scheme was simple only on paper, requiring multiple visits and paperwork with uninterested bank staff and testing centres. Even for Mangal, whose coins had no sentiment attached, the friction defeated the transaction. 

Mangal gave up. She turned instead to SGBs. This meant selling the coins and paying about ₹2 lakh tax on the pre-conversion gains — the very tax the GMS had promised to spare her. But the trade-off was worth it. SGBs were simpler. She invested the balance, received regular interest, and when she redeemed the bonds, the value had grown to ₹56 lakh — entirely tax-free.

Both the GMS and SGBs had a problem on the other side. Depositors were promised gold-linked value, so when gold prices rose, the burden fell on the taxpayer. This open-ended liability eventually led the government to stop issuing new SGBs. The government was also paying interest and forgoing tax on redemption gains in both schemes, with the GMS additionally  exempting pre-conversion gains. The problem of getting household gold into the formal system remained unsolved. 

Enter Electronic Gold Receipts (EGRs)  EGRs convert physical gold into a dematerialised security that can be traded, pledged or reconverted into gold. Unlike the GMS and SGBs, EGRs are market-backed, not government-backed: if gold prices rise, the gain comes from the market, not the taxpayer. The operational friction that defeated Mangal should also be lower because the process uses accredited testing centres, vaults and existing market intermediaries. 

But EGRs will not attract householders like Mangal unless they can earn income from gold. Two things are needed. First, a regulated gold lending and borrowing programme should let EGR holders lend gold for a fixed period. If this income is tax-free, EGRs would offer what physical gold cannot — continuing income without losing gold-price exposure. Second, a limited-period waiver of pre-conversion capital gains tax, say until March 31, 2027, would push households to make the first move, creating urgency while capping the government’s concession. 

These concessions may look like revenue giveaways, but much of that loss is theoretical. If households do not convert, the taxable gains and lending income will not arise in the formal system at all. The need is greater too — gold prices are higher and India’s foreign exchange position is under far more pressure than in 2015. But the ask from the government is actually smaller. The GMS and SGBs required the government to stand behind the gold-price promise. EGRs do not. 

Truth be told, the slogan writes itself: “Earn tax-free income from your idle jewellery.” Unlike in 2015, when reaching households like Mangal depended entirely on banks, today a single viral social media post can do what no distribution network could. Millions of Indian households are sitting on gold that is doing nothing for them or for the nation. EGRs, done right, could be that rare policy that serves both — without the taxpayer footing the bill. 

The writer heads Fee-Only Investment Advisors LLP, a Sebi-registered investment advisor; X (formerly Twitter): @harshroongta