One can deposit gold in any form (bars, coins, jewellery excluding stones and other metals) in a GMS account with banks to earn interest as also not lose out on the appreciation in gold value. The income under GMS enjoys exemption from income-tax in India.
How does it work?
Any Indian resident can approach the Collection and Purity Testing Centre (CPTC) with the gold. The CPTC tests the purity of the gold and provides advice. On the basis of this advice, the bank deposits the amount specified in the advice in the GMS account and issues a deposit certificate. The GMS accounts are subject to KYC norms. In some cases, the banks can directly collect the gold and provide deposit certificate.
Why has GMS not picked up?
Indians consider gold as a safe investment option as gold has long been an effective hedge against inflation. Gold has a sentimental value and is perceived as an attractive investment option that almost always escalates in value and does not need the caution of reading any document or fine print prior to investing.
However GMS, with all its benefits and attractive features, has not quite picked up pace owing to factors such as lack of awareness about GMS, low interest rates and the classic Indian desire for holding physical gold.
Following illustrative tweaks to the GMS, which may be undertaken as policy changes in a gradual manner, would help make it popular:
Increasing the interest rates to 4%-5% is likely to generate greater financial interest and may compensate for any loss arising on account of making-charges and process-loss on the gold, if it is sold in times of hardship, such as Covid.
Enabling a regulated market for trading the GMS certificates could enhance liquidity thereby promoting the GMS.
An effective marketing campaign may be launched to popularise the GMS and dispel any misconceptions/ apprehensions regarding GMS. The campaign should emphasize that married women, unmarried women, and men (married or unmarried) can deposit 500, 250 and 200 grams of gold respectively without attracting income tax enquiries.
There appears to be a lack of trust between banks, CPTCs and refiners. Creating an association with representatives from CPTCs, banks and refiners can help to resolve issues between different parties so that the GMS can be implemented effectively.
Successful implementation of GMS requires addressing issues related to consumer behaviour and preferences. It calls for stakeholders to come together to create a robust ecosystem for GMS, that minimises inefficiencies and protects the interests of all parties involved. There is need to revisit the scheme and address issues that are inhibiting gold held by households in India.
– By Bhargav Selarka, Senior Tax Professional, EY India
(The views expressed are personal)