What is the Gold Monetization Scheme? A Complete Guide for Investors

It's one of the essential investment options that has always been part of Indian life. But, strangely enough, most gold lies idle, so to speak-in houses, safe deposit lockers, or even in a jewellery box. India launched its own Gold Monetization Scheme wherein gold could be deposited into a bank's vaults, which earns an interest rate for the amount placed there. Such benefits would unlock gold, which until then had lain under the pillow, along with several other tax advantages to help the investor optimize the strategy of their wealth management.

What is Gold Monetization Scheme (GMS)?

The Gold Monetization Scheme (GMS) allows individuals, trusts, and institutions to deposit their gold with banks and earn interest on it. The deposited gold is refined after melting, and depositors receive a certificate confirming the amount deposited. The gold remains with the bank for a specified tenure, after which the depositor can choose to withdraw it either in gold or as cash.

The GMS, launched in 2015 by the Government of India allows individuals and other institutions to deposit idle gold, which earns the depositors bank interest on them. It tries to mobilise the large unproductive stockpile of gold of households and the institutions that thereafter can be drawn into productive engagements in the economy.

Features of Gold Monetization Scheme

Gold Monetization Schemes (GMS) in India allow individuals, trusts, and institutions to deposit their idle gold with banks to earn interest while contributing to the country's gold reserves. Here are the key features of Gold Monetization:

1. Types of Deposits

Short-Term (STGD): 1 to 3 years

Medium-Term (MTGD): 5 to 7 years

Long-Term (LTGD): 12 to 15 years

2. Interest Earnings

Depositors earn interest on their gold holdings, which is credited in gold or cash.

Interest rates vary based on the deposit tenure.

3. Security & Convenience

The deposited gold is securely stored with banks and refiners.

It can be redeemed in gold or cash, depending on the scheme.

4. Tax Benefits

No capital gains tax on appreciation in gold value or interest earned.

Exempt from wealth tax and income tax.

5. Liquidity Options

Premature withdrawal is allowed with specific conditions.

Investors can opt for partial withdrawal after a minimum lock-in period.

6. Contribution to the Economy

Helps reduce India's gold imports by utilizing existing gold reserves.

Mobilizes idle household gold for productive use.

Eligibility under Gold Monetization Scheme

Any resident of the country is a beneficiary of such a scheme to include:

• Earning Individuals

• Hindu Undivided Families (HUFs)

• Proprietorship and Partnership firms

• Trusts, including Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations

• Companies

• Charitable institutions

• Central and State Governments, or any other entity owned by them

This makes it possible for different types of entities to receive the benefits being offered in the scheme.

Minimum Deposit under Gold Monetization Scheme

A minimum of 10 grams of raw gold in the form of bars, coins, or jewelry deposited is required. The GMS has no maximum limit and allows people to deposit higher quantities of gold.

Types of Deposits under GMS:?

There are three types of deposits offered by the GMS, each catering to a different type of investment horizon.

• Short-Term Bank Deposit (STBD): Tenure ranges from 1 to 3 years.

• MTGD: Tenor is between 5 to 7 years

• LTGD: Tenor is between 12 to 15 years

This option allows depositors to select a term which suits their needs and goals

Interest Rates:

Interest rates for GMS vary with the tenure of the deposit

Short Term Deposits:

1 year 0.50% per annum

1-2 years 0.55% per annum

2-3 years 0.60% per annum

MTD: 2.25% per annum

Long-Term Deposits: 2.50% per annum

The interest is based on the gold in the deposit, and payment could be made in gold or in cash at the option of the depositor according to terms settled with the bank.

GMS Participating Banks

All the banks in India that have been permitted to accept gold deposits under the GMS. These banks maintain proper procedures and directives when receiving gold deposits to protect the assets of the depositor.

Benefits of the Scheme:

• Earn Interest : The depositor earns interest on their idle gold holdings, providing better returns over time.

• Safe Custody : Gold deposited with a bank is placed under safe custody, which reduces the risks associated with holding physical gold.

• Tax Benefits : Income earned from the GMS is not subject to capital gains tax, wealth tax, and income tax, which would save huge amounts of tax for the depositors.

Depositors participating in the Gold Monetization Scheme benefit not only through interest earnings and tax exemptions but also by contributing to the overall economic objective of reducing India's dependence on gold imports.

Key Tax Benefits for Investors under GMS

The tax benefits under the GMS provide Indian investors an opportunity to save on taxes while monetising their idle gold. Here are the key tax advantages that can benefit you:

1. No Capital Gains Tax on Gold Deposited

One of the excellent tax benefits of the Gold Monetization Scheme is that no amount of capital gain tax is collected for the gold under this scheme.

2. Exemption from Wealth Tax

The gold deposited under the scheme is exempt from wealth tax.

3. Tax benefits

GMS has among its best features the no levying of taxes on capital gain of profits garnered by an individual or an institution through the scheme. All payments, namely the interest and cash payment on maturity, of a GMS have an exemption under both income tax as well as under wealth tax.

Conclusion

The Gold Monetization Scheme has tax benefits, which Indian investors can use by leveraging their idle gold holdings. With exemptions from capital gains tax, wealth tax, and, income tax as well as tax advantages on interest earned, the GMS offers exciting prospects for gold owners. Using GMS effectively and keeping abreast of the impact that tax liabilities will have on investment growth stands to benefit the investor and reduce tax burden.

Gold, traditionally a safe haven asset, now becomes even more profitable under this government-backed scheme, offering tax-efficient ways to manage your gold holdings. Whether you have accumulated it over the years or have inherited gold, GMS helps you make the most out of it while minimizing your tax obligations.