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.
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
How effective is the Gold Monetization Scheme – review
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.