Cabinet clears GOLD schemes: I-T Act to be amended for tax benefits under bond scheme

The move follows an announcement in the 2015-16 Union Budget to curb gold imports that led to the current account deficit ballooning to 4.7 per cent of the GDP in FY13.

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The monetisation schemes, which include the revamped gold deposit scheme (GDS) and the gold metal loan scheme, would allow individuals and institutions to deposit a minimum of 30 grams of gold bullion or jewellery into a gold deposit account and earn interest on it. The gold can be deposited for a short-term period of one to three years; a medium-term period of five to seven years and a long-term period, of 12-15 years, said an official statement.

Jaitley, however, stressed the scheme would not be a black money immunity scheme and normal taxation laws would apply. Economic affairs secretary Shaktikanta Das later told reporters there would be no compromise on KYC norms under the scheme and all requirements of the Income Tax Act, 1961, would have to be met. “We do not want unaccounted wealth to be converted into white through these schemes,” he stressed. Das said the tax benefits under the GDS 1999 that provides exemption from wealth tax, capital gains tax and income tax on interest income, would be applicable on the new scheme as well.

The finance ministry will now finalise the interest rate for the two schemes in discussion with the Reserve Bank of India. The GDS 1999 has an interest rate ranging between 0.75 per cent and 1 per cent for tenures between three to five years.

Meanwhile, the sovereign gold bond scheme that aims to discourage sale of gold in physical form would issued in two, five and 10 grams of gold or other denominations and the tenor of the bond could be for a minimum of five to seven years. The scheme will have an annual cap of 500 gram per person and the interest rate will be decided from time to time on the basis of market rates.

To attract more investors to the bonds, Das said the department of revenue has also agreed to tax benefits under the scheme in the next Budget. “The Income Tax Act will be amended to provide indexation benefit with the transfer of gold bonds and also exemption from long term capital gains tax at the time of redemption,” he said, adding that this will give a level playing field to subscribers who hold physical deposits of gold and do not have to pay tax when they sell it.

The bonds would be part of the government’s borrowing programme and would help finance the fiscal deficit. Subscribers can also use these as collateral for loans.

How the schemes will work

Announced in the Union Budget 2015-16, the two schemes are expected to help cut down on gold imports estimated at over 1,000 tonne annually that inflate the current account deficit.

Gold monetisation scheme

Individuals and institutions can open a gold savings account with a bank and deposit at least 30 grams of gold bullion or jewellery after certification from a hallmarking centre for short, medium or long term.

Earn interest and get tax exemptions including exemption from wealth tax, capital gains tax and tax-free interest income.

Redemption in gold or cash in short term and only cash in medium and long term.

Government Fish out idle gold resources with households.

Mobilise RBI’s gold reserves, use it for making coins, lend it to jewelers.

Sovereign gold bond scheme

Individuals and institutions can purchase bonds in denominations of 5,10,50,100 grams of gold instead of physical gold assets and earn interest on it.

Department of revenue to provide tax exemptions in next Budget including indexation benefit on transfer of bonds and also exemption from long-term capital gains tax at redemption.

On maturity, the redemption will be in rupee amount only.

Government can cut down on demand for gold and its imports.

Will be used in lieu of government borrowing.