Earn tax-free interest from your gold - Gold Monetization Scheme (GMS)

The article explains about a new deposit scheme introduced by the Government known as the Gold Monetization Scheme. This scheme allows customers to earn tax-free interest by depositing their idle gold in banks through accounts called Gold Savings Account.

We Indians have a fond liking to the yellow metal i.e., gold and this has been an age old and traditional thing since time immemorial. A majority of the gold can be found in households, temples and other similar institutions in the form of ornaments, jewelry and coins. All of this gold remains locked or rather lies idle in the sense they are not used for further investment and trade. According to reports the quantity of such idle gold is close to 20, 000 tonnes which could be well over Rs. 60 lakh crores in value.

In order to mobilize this vast quantity of unused gold, the Government has introduced a new tax-free interest scheme on gold deposits known as the Gold Monetization Scheme or GMS. The main aim of the GMS scheme is to put the idle gold into proper productive channels and provide people an opportunity to earn some interest on their idle holdings. This scheme would be available only in few select cities initially.

Gold Monetization Scheme

How Gold Monetization Scheme (GMS) works – salient features

The GMS scheme requires the customers to deposit their idle gold holdings with banks by opening a Gold Savings Account and earn tax-free interest on such deposit. It also allows jewelers to obtain loans against the gold deposited. The interest earned is tax-free in the sense it is free from income tax, wealth tax and capital gains tax. Also these taxes do not apply on the appreciation value of the deposited gold.

One important feature of this scheme is that gold cannot be deposited directly in its current form and has to be melted to remove impurities, stones and other elements and converted into standard bars. Only then it becomes eligible for deposit under the GMS scheme.

GMS – Minimum deposit limit

The minimum amount of gold that can be deposited under the GMS scheme has been fixed at 30 grams (bullion or jewelry) for both households and institutions. There is no maximum or upper limit. The gold to be deposited must be tested at BIS certified Hallmarking Centers to estimate its value.

GMS – Minimum deposit period

The minimum period of deposit under the Gold Monetization Scheme is one year. However, in case you wish to opt out of the scheme before this period, some penalty charges might be applicable.

Gold Monetization Scheme - rate of interest

The rate of interest on gold deposited under the GMS scheme has been left to be decided by individual banks. The interest will be credited 30 or 60 days after opening the Gold Savings Account. Another important point is that the principal gold as well as interest earned will be 'valued in terms of gold' i.e., for instance, if you deposit 500 gms of gold and the interest rate is 1% per annum, then your account balance will show 505 gms after one year. However, you can withdraw your principal and interest either in gold units or cash.

Also Read: Gold ETF or Gold Savings Fund, which gives you better returns?

How to open a Gold Savings Account – procedure to deposit gold under GMS

  • Individuals who want to take this scheme must first visit any of the 350 BIS certified Hallmarking Centers across the country to test the purity of gold they want to deposit. There will be a nominal charge for this purpose.

  • The testing centers then provide an estimate of the gold value (purity of gold) and the customer can either accept or decline the valuation. If the value is agreeable, then he/she needs to fill up a KYC/Bank form and give consent for further processing i.e., for melting the gold and depositing it. This initial testing process would take close to 45 minutes.

  • The same center will then begin the process of melting the gold and you can witness this entire process from viewing galleries. The gold will first be cleaned of impurities and any precious stones or gems in it will be removed and handed over to you. It will then be melted and its purity will be ascertained by passing it through a fire assay. This entire process takes about 3-4 hours to complete.

  • After this process, you again have the option to either deposit the melted gold or not. If you do not agree, you can take the melted gold back and pay the necessary fees to the testing center. If you do agree to continue further, then you do not have to pay the fees as this will be paid by the bank.

  • You will then be given a certificate by the purity testing center, which will have information about the purity and amount of gold deposited with them. After this, you must go to the bank and produce this certificate. Based on this certificate, banks will open a Gold Savings Account and immediately credit the amount of gold deposited at the purity center.

Gold Monetization Scheme

How effective is the Gold Monetization Scheme – review

  • Though the scheme offers some interest and security for the customers, it will be difficult to change the minds of people mainly because it involves melting the gold. People like to hold their assets in the form they are and may not agree to convert it and this is the possibly the biggest drawback of the Gold Monetization Scheme.

  • Although the interest is tax-free, the rate of interest is likely to be quite low, just about 1 or 2%. SBI already offers such a gold deposit scheme with a nominal interest rate of 0.75% to 1%. This is very low compared to other investment options like fixed deposits and term deposits – another unattractive feature of this scheme.

  • The number of testing centers is only 350, which is very less given the size of our country.

  • People in rural and other remote areas usually buy gold unaware of its exact purity or without any BIS hallmark or standard. And when they see a negative value of the buying price in their gold, they naturally would not like to enter into such a scheme.

  • The making charges for gold jewelry are usually in the range of 5-10% and when such jewelry is deposited by melting, the customer has to again bear these making charges if he wishes to covert the gold again into jewelry after redemption.


Author: Timmappa Kamat29 Jun 2015 Member Level: Gold   Points : 1

I do not think the scheme is beneficial to the common man. None of us will be willing to melt the gold we have - be it in temples or in one's homes- just for the sake of a meagre interest of 1% or so.

Author: Anwesha30 Jun 2015 Member Level: Gold   Points : 1

How is the response to such Gold deposit schemes? Are people investing in it? I think if someone is that desperate, they can simply sell off their jewels instead of taking this headache!

Author: Timmappa Kamat07 Jul 2015 Member Level: Gold   Points : 1

Thats exactly my point, Anwesha. All this procedure has no meaning to a normal investor. I don't think anyone will be willing to invest his jewellery to get such returns. However, the scheme looks to monetise the idle gold in most of the Indian homes. It could be a good step in the direction, yet we love our gold in the form of jewellery, not in its scrap form. I am talking of the common man.

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