Gold monetisation: No question likely on up to 100 gram deposits

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October 2, 2020 3:00 AM

However, both the monetisation and bond schemes have remained a far cry from success and represent only less than 2% of the country’s annual gold consumption.

Since gold already attracts a 12.5% basic customs duty, any move to raise it further to discourage imports is fraught with risks of higher smuggling.Since gold already attracts a 12.5% basic customs duty, any move to raise it further to discourage imports is fraught with risks of higher smuggling.

People depositing gold in banks up to a limit of about 100 grams each under a monetisation scheme won’t be asked any question by the taxman, if a raft of amendments being considered by the government in its policy to promote greater formalisation in the bullion and jewellery sector is finally cleared.

Similarly, deposits made under the gold monetisation scheme (GMS) won’t be subject to any GST, capital gains and wealth taxes. Interest earned on such deposits will be exempted from the income tax as well, according to the proposed amendments. The annual interest rate on gold parked with banks under existing GMS is up to 2.5% (which varies depending on the tenure of deposits).

The government is also planning to make it mandatory for all state-run banks to roll out the gold monetisation scheme (GMS). Currently, their participation is voluntary.

The Centre had launched the gold schemes (monetisation, bonds and sovereign coins) in 2015 to reduce the reliance on the import of the precious metal and curb its debilitating impact on current account deficit. While the gold monetisation scheme is aimed at tapping household stocks, through gold bonds, the government wants to wean away investors from the purchases of the physical metal to “paper gold”.

However, both the monetisation and bond schemes have remained a far cry from success and represent only less than 2% of the country’s annual gold consumption.

This has forced the government to rework the existing schemes. India’s gold demand stood at 3,746 tonne in the past five years (2015-2019), according to the World Gold Council (WGC). Nevertheless, the current monetisation scheme has witnessed a marked improvement upon an earlier one under which the Centre had garnered only two tonnes of gold between 1999 and 2015.

Since gold already attracts a 12.5% basic customs duty, any move to raise it further to discourage imports is fraught with risks of higher smuggling. So the government wants to further enhance the appeal of its monetisation scheme by revising some of its current features.

Indian households, together the world’s largest hoarders of gold, are estimated to have piled up a record 24,000-25,000 tonne of the precious metal, worth over $1.3 trillion.

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