GOLD MOBILIZATION SCHEME (DRAFT)
Seeking to mobilize idle gold worth up to Rs 60 lakhs crore held by households and institutions, government yesterday proposed a new scheme offering tax-free interest on depositing the yellow metal (Gold) with banks. The scheme, which is proposed to be initially introduced only in select cities, will be later on launched in all the parts of the country.
The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account. Banks/other dealers would also be able to monetize this gold.
The Finance Ministry has sought comments from stakeholders on the draft gold monetization scheme by June 2.
The draft gold monetization scheme also provides for incentives to the banks, while individuals and institutions can deposit as low as 30 Gms of gold, while the interest earned on it would be exempt from income tax as well as capital gains tax.
As per the draft guidelines, a person or institution holding surplus gold can get it valued from BIS-approved hallmarking centers, open a Gold Savings Account in banks for a minimum period of one year and earn interest in either cash or gold units.
Under the scheme, the bank interest to the customers will be payable after 30/60 days of opening of the Gold Savings Account.
The amount of interest rate to be given is proposed to be left to the banks to decide. Both principal and interest to be paid to the depositors of gold will be ‘valued’ in gold. For example, if a customer deposits 100 Gms of gold and gets 1 per cent interest, then, on maturity he has a credit of 101 Gms.
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With regard to redemption, the guidelines provides that customers will have the option of getting it back either in cash or in gold which will have to be exercised at the time of making the deposit.
The tenure of the scheme has been proposed at a minimum 1 year and with a roll out option in multiples of one year. It would be like a fixed deposit, breaking of lock-in period will be allowed.
Banks may sell the gold to generate foreign currency. The foreign currency thus generated can then be used for onward lending to exporters or importers. Bank may convert mobilized gold into coins for onward sale to their customers and can be used for lending to jewelers.
To Incentive banks, it is proposed that they may be permitted to deposit the mobilized gold as part of their CRR/SLR requirements with RBI. However this aspect is still under examination.
Detailed Draft Gold Monetization Scheme
Purity Verification and Deposit of Gold:-
First of all the person seeking to monetize his gold will have to approach a Purity Testing Centre for verification of purity. For this purpose, Bureau of Indian Standards (BIS) certified Hallmarking Centers (which need not necessarily be jewelers) will act as ‘Purity Testing Centers’.
Preliminary Test: In a Purity Testing Centre, a preliminary XRF machine-test will be conducted to tell the customer the approximate amount of pure gold. If the customer agrees, he will have to fill-up a Bank/KYC form and give his consent for melting the gold. If the customer does not agree to the XRF machine test, he can take his jewellery back at this stage.
Fire Assay Test: After receiving the customer’s consent for melting the gold for conducting a further test of purity, at the same collection centre, the gold ornament will then be cleaned of its dirt, studs, meena etc. The studs will be handed-over to the customer there itself. Net weight of the jewellery will be taken after such removals and told to the customer. Then, right in front of the customer the jewellery will be melted and through a fire assay, its purity will be ascertained. These centers have viewing galleries from where the customer can see the entire process.
Deposit of Gold: When the results of the fire assay are told to the customer, he has a choice of either refusing to accept, in which case he can take back the melted gold in the form of gold bars, after paying a nominal fee 1 to that centre; or he may agree to deposit his gold (in which case the fee will be paid by the bank). If the customer agrees to deposit the gold, then he will be given a certificate by the collection centre certifying the amount and purity of the deposited gold.
Conditions: The minimum quantity of gold that a customer can bring is proposed to be set at 30 grams, so that even small depositors are encouraged. Gold can be in any form (bullion or jewellery).
Opening of Gold Savings Account with the banks:-
Gold Savings Account: When the customer produces the certificate of gold deposited at the Purity Testing Centre, the bank will in turn open a ‘Gold Savings Account’ for the customer and credit the ‘quantity’ of gold into the customer’s account. Simultaneously, the Purity Verification Centre will also inform the bank about the deposit made.
Interest payment by banks: The bank will commit to paying an interest to the customer which will be payable after 30/60 days of opening of the Gold Savings Account. The amount of interest rate to be given is proposed to be left to the banks to decide. Both principal and interest to be paid to the depositors of gold will be ‘valued’ in gold. For example if a customer deposits 100 Gms of gold and gets 1 per cent interest, then, on maturity he has a credit of 101 Gms.
Redemption: The customer will have the option of redemption either in cash or in gold, which will have to be exercised in the beginning itself (that is, at the time of making the deposit).
Tenure: The tenure of the deposit will be minimum 1 year and with a roll out in multiples of one year. Like a fixed deposit, breaking of lock-in period will be allowed.
Tax Exemption: In the Gold Deposit Scheme (1999), the customers received exemption from Capital Gains Tax, Wealth tax and Income Tax. Similar tax exemptions are likely to be made available to the customers in the GMS after due examination.
Utilization of Deposited Gold:-
CRR/SLR: To incentivize banks, it is proposed that they may be permitted to deposit the mobilized gold as part of their CRR/SLR requirements with RBI. This aspect is still under examination.
Foreign Currency: Banks may sell the gold to generate foreign currency. The foreign currency thus generated can then be used for onward lending to exporters / importers.
Coins: Bank may convert mobilized gold into coins for onward sale to their customers
Exchanges: Banks to buy and sell on domestic commodity exchanges, where mobilized gold can be delivered.
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