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Government Gold Saving Scheme

All about Government Gold Saving Scheme

It is estimated that 20,000 tonnes of gold is lying idle with the households Indians and institutions. So, in the year November 2015, the Indian Government has launched three gold related schemes to bring out the gold in the economy lying with the citizens of India and to even decrease India's dependency on imports of gold.

What is Government Gold Saving Scheme?

Gold is bought as a savings scheme throughout India. It is also noticed that after payment of labour charges, taxes etc., these customers purchase gold coins or jewellery, all of which are abandoned on exchange and encashment. Moreover, while individuals residing in urban regions may have the choice of other financial instruments to choose from, individuals residing in rural regions often shy away from complicated financial instruments. Therefore, they choose to invest in gold, which also when needed gives the rural citizens chance to encash gold and jewellery. The new Government Gold Saving Scheme is being suggested to these very individuals, as it would allow citizens, especially rural citizens, to save gold without losses (losses due to taxes and labour charge) at the time of encashment.

3 Types of Government Gold Saving Scheme

Indian Government on November 2015 has launched 3 types of Government Gold Saving Scheme:

  • Sovereign Gold Bonds,
  • Gold Monetisation Scheme, and
  • Indian Gold Coins.

Sovereign Gold Bonds (SGB)

The RBI, i.e. Reserve Bank of India has some special Sovereign Gold Bonds which are issued on behalf of the Government of India. Bonds are government securities denominated in grams of gold, which are an alternative to holding physical gold. Investors have to pay the Sovereign Gold Bonds issue price in cash and the bonds on maturity will be paid back in cash. The quantity of gold payable by the investor is shielded because at the time of redemption/ premature redemption, the investors gets the ongoing market price of gold. SGB offers a superior alternative to physically holding gold, eliminating the risks and costs of storing gold. At maturity along with periodic interest, investors will be ensured of the market value of gold. The purchaser of Gold in jewellery form has to face problems like making charges and purity issues, but the investors of SGB does not have to face such problems.

The bond shall be kept within the RBI books or in demat form in order to eliminate the risk of script loss etc. If the market price of gold decreases, the danger of capital loss may arise. The investor, however, does not lose the gold units he/she has paid for. People living in India as described in the Foreign Exchange Management Act, 1999 are only qualified to invest in SGB. Individuals, Hindu Undivided Family (HUFs), universities and charitable organizations are the eligible investors. SGB may continue until early redemption/maturity for the individual investors with the residential status change from the resident to the non-resident person. Minors may even invest in SGB, but the application must be made by their guardian. SGB permits joint holding. The application form is provided through issuing banks, Stock Holding Corporation of India Limited (SHCIL) offices, agents or designated post offices. RBI’s website allows to download the application form. Banks may also offer online applications. The Permanent Account Number (PAN), which is issued to the investor by the Income Tax Department must be provided along with the application form.

Features of Sovereign Gold Bonds

The features of Sovereign Gold Bonds are as follows:

  • Eligibility: The obligations are restricted to Indian residents, which include individuals, HUFs, universities, trusts and charitable institutions. Banks like ICICI Bank sale bonds only to individuals through mobile app and internet banking channel.

  • Minimum and Maximum Limit: The minimum allowable limit for investment in the bond is 1 gram of gold. Maximum limit for investment in the bond varies for:

    • Individuals: 4 kgs of gold
    • HUF: 4 kgs of gold
    • Trust or any similar entities which are occasionally notified by the government: 20 kgs of gold.
  • Interest Rate: Interest on the bond shall be paid to the investors on the amount of original investment at the rate notified by RBI. The interest is paid semi-annually.

  • Redemption: The price of redeeming the bond shall be fixed in Indian Rupees. The price of redemption will be based on simple average of gold’s closing price of the last 3 business days of 999 purity of gold which will be calculated from the date of repayment, which is as released by the India Bullion and Jewellers Association Limited.

  • Tenure: The bond’s tenure is for a period of 8 years. The investors can even choose exit option from 5th year onwards at the interest payment dates.

Benefits of Sovereign Gold Bonds

Sovereign Gold Bonds offers following benefits:

  • Gold ownership without any physical possession i.e. no risks and cost for storing gold.
  • Treatment of tax: An individual is exempted from tax on capital gains resulting out of the redemption of SGB. In the event of a bond transfer, the indexing benefits are also provided on long term capital gains to any individuals.
  • Bonds are transferable by implementation of an instrument of transfer, in compliance with the regulations of the Government Securities Act.
  • Within a fortnight of the date of issuance, bonds shall be tradeable on stock exchanges.

Gold Monetisation Scheme (GMS)

Gold Monetisation Scheme is a type of term deposit in gold. Under this scheme customers can deposit their idle gold, which ensures security, earning interest and many more. The eligible depositor of this scheme may deposit its gold in the Medium & Long Term Government Deposit Scheme. The Medium-Term Government Deposit duration can be for 1-3 years (Short-term Gold Deposit) or 5 to 7 years (Long Term Gold Deposit), whereas Long Term Government Deposit duration can be for 12 to 15 years. On behalf of the Central Government, the deposit will be accepted by the bank.

Features of Gold Monetisation Scheme

Gold Monetisation Scheme has the following features:

  • Minimum and Maximum Limit: The minimum limit under this scheme is 30 grams of raw gold which include coins, bars, jewellery, which does not include any stones and other metals. There is no maximum limit for both Long and Medium Term Government Deposit Scheme.
  • The goal of the scheme is to mobilize and facilitate the use of gold held by the households and institutions of the country for productive purpose. In the long run, it also helps to reduce the dependence of the country on imports of gold.
  • Interest on this scheme is decided by the Central Government. The current interest rate offered on gold deposit for both the scheme are as follow:

    • Medium Term Gold Deposit - .25% per annum
    • Long Term Gold Deposit - 2.50% per annum

Medium & Long Term Gold Deposit interest shall be determined in Indian Rupees in respect of the value of gold at the time of deposit. The deposit shall be reimbursed for the value of gold in Indian Rupees as per the prevailing gold price.

  • Eligibility: Resident Indians which includes HUFs, Individuals, Partnership & Proprietorship Firm, Trusts including Exchange Traded Funds/Mutual Funds registered under SEBI Regulations and Companies are eligible to avail this scheme.
  • Joint deposits are permitted by the two or more eligible depositors.
  • Lock-in period: The depositor can withdraw from the following scheme:

    • Medium Term Gold Deposit - After 3 years any time
    • Long Term Gold Deposit - After 5 years any time
  • The bank shall permit the entire or partial withdrawal of the deposit.
  • Penalty on premature withdrawal: In case the depositor has made a partial/premature withdrawal, then penalty will be charged as follows:
  • Medium Term Gold Deposit - o If withdrawal made in year greater than 3 and less than 5 then 0.375%.
                           o If withdrawal made in year greater than and equal to 5 and less than 7 then 0.25%.
    
  • Long Term Gold Deposit - o If withdrawal made in year greater than 5 and less than 7 then 0.25%.
                         o If withdrawal made in year greater than and equal to 7 and less than 12 then 0.375%.
                         o If withdrawal made in year greater than and equal to 12 and less than 15 then 0.25%.
    

Benefits of Gold Monetisation Scheme

The following benefits are offered by GMS:

  • Depositor earns interest on the previously purchased gold coins from banks and can even earn interest on gold jewellery lying in the lockers of bank.
  • Bank keeps the gold of the depositor safe.
  • Earnings under this scheme are exempted from taxes charged under capital gain, wealth and income.
  • Banks are linked to known Refiners who will assist the depositor to check the purity of gold and evaluate the gold that lies ahead of the depositor.

Indian Gold Coins

Indian Gold Coins are the first gold coins of India which have the picture of Ashok Chakra on one side and on the other side the picture of Mahatma Gandhi. Currently, the coins are available in 5 grams, 10 grams and 20 grams denominations. This even enables people with a small appetite to buy gold under this scheme. The Indian Gold Coins that have been made available have a purity of 24 carats and a fineness of 999, which makes customers tension free from quality and mixed gold. The gold coin has advanced anti-counterfeiting features and tamper-proof packaging that make the coin safe and can be recycled. These coins are hallmarked as per the Bureau of Indian Standards (BIS) standards. Coins are minted by Security Printing and Minting Corporation of India Limited (SPMCIL). Customers must fill up gold purchase slip. The coins issued by the bank can only be sold to the accountholders and coins are available on the selected branches of the bank.

Features of Indian Gold Coins

Indian Gold Coin has following features:

  • Indian Gold Coins are of high purity.
  • You can easily monetize these coins. Since these gold coins are supported by the Metals and Minerals Trading Corporation of India (MMTC), so it is easier for the customer to sell the coins in the open market.
  • Indian Gold Coins price are fixed by the MMTC. These coins are estimated to be 2 to 3% cheaper than those manufactured by the well-known corporate sellers. Customers can check the current price of Indian Gold Coins in the official website of MMTC.
  • These coins are currently available across 388 outlets which even include banks like Federal Bank, Andhra Bank, Vijaya Bank, etc.
  • These coins cannot be easily duplicated since it has anti-counterfeiting features and tamper-proof packaging.
  • Eligibility: Indian residents only.

Benefits of Indian Gold Coins

Indian Gold Coins offers following benefits:

  • These coins must be purchased since it is certified.
  • Coins can be easily stored.
  • The quality of Indian Gold Coins over the time remains same.
  • These are not the imported coins.

Conclusion

GMS allows Indian citizens to deposit their household gold and receive an interest at a rate of 2.5%. Whereas SGBs are designed to turn physical gold investment into paper demands, which fetches yearly interest rate of 2.50%. Monetisation scheme earnings are exempted from wealth tax, income tax and capital gains tax. One can only receive interest after a month when the gold is deposited, but under Monetisation scheme, customers can earn interest from the next day after depositing their gold with jewellers. The move also contributes to decreased metal imports.

India imports an average of 1000 tonnes of yellow metal yearly, which affects India’s foreign exchange reserves and even puts pressure on the current account deficit (difference between foreign currency’s inflows and outflows). Every year, according to estimates, the Indians purchase around 300 tonnes of gold bars as investment assets. These schemes will be a better choice for them. The goldsmiths in India enjoy a strong bond of trust. Once these plans are familiar to them, they can become the main agents of the schemes. When the gold smuggling was increasing, these gold schemes were introduced. According to reports by Directorate of Revenue Intelligence (DRI), around 886 kg of gold were seized, which were worth of Rs. 234 crores, in the first quarter of 2015-16. However, it depends on how the Indians respond to the scheme, as GMS has the ability to reduce the smuggling.