The Gold Monetization Scheme and the Gold Bond Scheme, which evoked a poor response, will now come with some tax benefits. The Union Budget 2016-17, has proposed that gold bonds would be exempt from Capital gains tax at the time of redemption.
On the other hand the income from the Gold Monetization Scheme and the capital gains from the same would be tax free.
The move was largely aimed at channelizing the gold lying idle and creating a financial asset out of the same. The objective was to reduce gold consumption, as gold is imported by India and the country bears an enormous burden by way of forex outflow. Adding to the worry are the increase in gold rates.
This leads to pressure on the currency. The government has been trying to hence discourage the consumption of gold.
How the Gold Monetization Scheme Works?
1) You first need to bring your gold to the testing centres, where your gold would be tested for purity. It will then be melted depending on the consent of the gold holder.
2) You should bring a minimum of 30 grammes in order to avail the facility.
3) You will be given a gold certificate and can proceed to open a gold savings account at a bank, based on the certificate.
4) You will now be paid an interest on the gold deposit. This is what is now exempted in the Union Budget 2016-17.
5) The interesting thing is that you have the choice of exercising, your right of either redeeming the amount in gold or money. The choice has to be made when making the application.
6) The gold savings is already exempt from capital gains tax.
Benefits in the Union Budget 2016-17 for Gold
Despite the benefits for the two schemes in the Union Budget 2016-17, investors may still choose to ignore, because both the schemes have still to catch-up. Most investors are not ready to melt their physical gold and change the same for these schemes for a small interest rate.
Per se the schemes are not too bad and has the potential of channelizing idle gold assets into financial assets. Another way of buying gold would also be through the futures segment, if you would wish to help in nation building and avoid buying physical gold. These are also safe as compared to physical gold as they cannot be stolen, neither would you need a locker.