Budget 2021: Norms of gold scheme to be tweaked to nudge fund allocation away from physical buying

The government is planning to tweak the existing gold deposit and gold metal loan schemes to wean away investors from excessive investment in physical gold. The changes will make it eligible for a larger number of people to open gold deposit accounts as the minimum amount of deposit required in these gold accounts will be reduced substantially and other changes introduced to make these more attractive.

Despite the government’s emphasis on gold monetisation over the last few years, including issuing gold bonds as part of its borrowing programmes, investment in physical gold and purchases of jewellery continues to outpace investment through financial channels.

Sources said the existing scheme will be made far from attractive from investment convenience and taxation aspects. “A number of amendments have been finalised in existing revamped Gold Deposit Scheme, revamped Gold Metal Loan Scheme and India Gold Coin Scheme. These changes have been recently reviewed by the Finance Minister (Nirmala Sitharaman),” said a government official. The Finance Ministry has held a series of discussions on these schemes over the last few months.

“There has been discussions at the highest levels on these schemes in the government, to make them more favourable to the smallest of investors, including people wanting to buy gold for jewellery purpose,” the official said. The government could unveil these changes in the Union Budget on February 1.

Under the revamped gold deposit scheme, investors can earn 2.25 per cent interest on medium- and long-term gold deposits having 5-7 years and 12-15 years tenure. Gold is accepted in the form of raw gold including gold bars, coins, jewellery excluding stones and other metals under the scheme.

But investors need to bring in minimum of 30 grams of gold, which is roughly worth Rs 1.5 lakh at current prices under the scheme. Sources said this amount will be substantially reduced to ensure that large number of people are able to open gold deposit accounts.

The minimum requirements of 30 grams could be reduced to 1 gram. Interest earnings and capital gains under the scheme will continue to be exempt from capital gains tax, wealth tax and income tax.

Amendments are also being planned in gold metal loan (GML) scheme, which is used by jewellery manufacturers to borrow gold metal and settle the GML with the sale proceeds obtained. Banks offer GML for 180 days in case of domestic jewellery manufacturers and for 270 days in case of exports.

The government has been regularly issuing sovereign gold bonds as part of its overall borrowing programme to support debt requirements as well as to provide a safe avenue for gold ownership without physical possession.