All you need to know about the gold schemes

Govt for the first time is launching an Indian gold coin which has the Ashoka Chakra engraved on one side and the face of Mahatma Gandhi on the other

In an attempt to gain from India’s obsession with gold, Prime Minister Narendra Modi’s government has launched two schemes to capitalise on it. The two schemes namely Sovereign Gold Bond scheme and Gold Monetisation Scheme are aimed at giving investors returns from their investment in the shining metal.

Intention of the government through these schemes is to control gold imports, utilise gold that is lying idle in Indian household and institutions and prevent hoarding of physical gold.

For those who would still like to buy physical gold, government for the first time is launching an Indian gold coin which has the Ashoka Chakra engraved on one side and the face of Mahatma Gandhi on the other.

 

Initially, the coins will be available in denominations of 5 and 10 grams. A 20 grams bar/bullion will also be available soon. The coin will carry advanced anti-counterfeiting features and tamper proof packaging that will aid easy recycling.

What are of more interests are the two schemes that are launched. Following are the key features of each scheme.

Sovereign Gold Bond Scheme

• Sovereign Gold Bond (SGB) is government securities denominated in grams of gold issued by the Reserve Bank of India on behalf of Government of India. They are a proxy for physical gold.
   
• Investors can buy bonds by paying in cash and the redemption will also be in cash.
   
• The bonds will be available both in demat as well as paper form.
   
• Minimum investment in the bond shall be two grams with a maximum limit of 500 grams. Further, each member of the family can own 500 grams of gold bonds and at the same time such purchases can be done every year. Bonds can also be gifted to anybody provided they meet the eligibility criteria.
   
• The tenor of the bond is for a minimum of eight years with option to exit in fifth, sixth and seventh years.
   
• The bonds bear an interest rate of 2.75 per cent per annum on the initial amount. Interest will be credited semi-annually to the bank account directly.  
   
• The price of gold will be fixed by RBI in Indian rupees on the basis of previous week’s simple average price.
   
• On maturity, the redemption proceeds will be equivalent to the prevailing market price of gold.
   
• These bonds can be bought from scheduled commercial banks and designated post offices, NBFCs and National Saving Certificate (NSC) agents. Application form can also be downloaded from RBI’s web site.
   
• Government guarantees both the capital as well as interest for these bonds which can also be used as collateral for loans.
   
• Bonds will be traded on exchanges which can give an investor an option to exit earlier.
   
• Capital gain tax treatment will be the same as in case of purchase of physical god. Tax department is considering indexation benefit if bond is transferred before maturity and a possible capital gains tax exemption at the time of redemption.
   
• Joint holding is allowed in SGB. Also a minor can apply for the bond but the application has to be filed by the guardian.
   
• In case of premature redemption, investors can approach the concerned bank/post office/agent thirty days before the coupon (interest) payment date. Request is entertained till one day before the coupon date. Part redemption in multiple of one gram is possible.
   
• No TDS (tax deducted at source) is applicable on the bond.
   
• Nomination facility is available on the bond.

Gold Monetisation Scheme

• Rather than keeping gold in your locker investment in the Gold Monetization Scheme (GMS) will earn the holder a regular interest.
   
• It is a gold saving account which will earn interest for the gold that you deposit in it.
   
• Gold can be in any physical form – jewellery, coins or bars.
   
• The account will earn interest based on gold weight as well as appreciation of the metal value.
   
• You can get back the gold in equivalent purity of 995 fineness or in Indian rupee.
   
• The option of how you want the redemption has to be exercised at the time of deposit.
   
• Earnings are exempt from capital gains tax, wealth tax and income tax. There will be no capital gains tax on the appreciation in the value of gold deposited or on the interest.
   
• Deposits can be made for any of the three tenures – Short term Bank Deposit for 1-3 years, Medium term bank deposit for 5-7 years and long-term government deposits for 12-15 years.
   
• The depositor will have to get the purity of his gold checked in any of the government designated Collection and Purity checking centres. Checking will be done in front of the depositor who will then be given a certificate of purity with gold content mentioned on it.