India is among the largest consumers of gold. There are a couple of new gold schemes that are going to be introduced this year in India which will help you to earn interest off the idle gold ornaments that are lying with you. Cabinet has given a nod to the gold monetisation and sovereign gold bond scheme, which will also be a new avenue to the investors.
Under the gold monetisation scheme, individuals can deposit a minimum of 30 gram gold in bullion or in the form of jewellery with the bank for a year and earn tax free interest. Under the sovereign bond scheme, gold bonds will be issued in rupees and denominated in 5 grams, 10 grams, 50 grams and 100 grams of gold.
Gold monetisation scheme
Individual can make deposit under this scheme in 3 buckets:
- Short term which is 1 to 3 years that has a rollout in multiples of 1 year
- Medium term which is 5 to 7 years
- Long term that is 12 to 15 years.
Short term deposits will have interest that will be denominated in volume terms or in gold grams. Medium term and long term will have interest denominated in rupees and based on the value of the gold that was deposited. The banks will hold discretion in setting the interest rate for the short term deposits but the government will decide the interest rate for longer term deposits. The interest rate is not official but it could range anywhere between 2 to 3 percent.
The banks will melt the gold and get the value from the BIS approved hallmark centres. The principal and interest payment to the customer will be valued in gold and the interest on the gold deposit will be decided by the bank. The gold purity will also be checked at the hallmark centres. If the customer is not agreeing to the machine test, then he or she can take back the jewellery. After taking the consent, the gold ornament will be sent for melting and the net weight will be calculated. If the customer is not satisfied with the value, he or she can take back the melted gold in the form of gold bars but a nominal fee will have to be paid to the centre. If the customer agree to the deposit, he or she will be given a certificate by the collection centre that certifies the amount and the purity of the gold that has been deposited.
If you want to redeem it, then you will be given the option to either get cash or gold for the short term deposits and the choice will have to be mentioned at the time of depositing the gold.
This scheme is exempt from capital gains tax and the interest is tax free and hence it is free from wealth tax as well.
The gold monetisation scheme is aimed at integrating the idle gold in Indian homes and temples into the larger economy. This will reduce the massive gold imports into the country every year. Gold imports are the second biggest commodity imports into India after oil. As such, reduction in gold imports will positively affect the larger economy by reducing the Current Account Deficit (CAD).
Sovereign gold bond scheme
This scheme helps reduce the demand for physical gold by shifting the purchase of physical bars and coins purchased each year as a form of investment to gold bonds.
The minimum investment is set at gram per person per year. The bonds will be available in demat and paper form. The tenure will range from 5 to 7 years. This will protect the investor form medium term volatility in gold prices.
The bonds can be used as a collateral for loans and the loan to value will be set by the Reserve Bank of India. The bonds can also be traded on exchange to allow early exit.
The redemption is in cash and the depositor will have the choice to roll over the bond for 3 or more years if the gold prices are low. Gold Reserve Fund will be created as the government is going to be exposed to the gold price and exchange rate risk. The deposit made under this scheme will not be hedged.
The capital gains tax treatment will be the same as it is for holding physical gold. Investor can avail indexation benefit for the long term capital gains that will arise on the transfer of the bonds.
This scheme will not affect the gold exchange traded funds as there is no limits set on the investment.
The sovereign gold bond scheme is aimed at reducing the dependence of the population on physical gold as a forms of savings. The sovereign gold bond will ultimately act as gold paper bonds which act and work just like physical gold. This will once again help in mobilizing the overall economy by lower imports.
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