Highlights of gold deposit and bond schemes

Highlights of the two gold schemes approved at a cabinet meeting chaired by Prime Minister Narendra Modi:

Key points of gold deposit scheme

– Minimum amount of gold set at 30 grams

– The 331 designated centres to test and collect gold from customers

– Gold can be in any form, bullion or jewellery

– A Gold savings account to be opened by customers

– Account to be denominated in grams of gold

– Centres to transfer gold to refiners

– Refiners to keep the gold in ware-houses unless banks want to hold themselves

– Refiners to be paid a mutually-decided fee by banks

– Customer will not be charged.

– Scheme available for short-, medium-, long-term periods

– Lock-in period can be broken with penalty

– Interest rate for short-term deposits to be decided by banks

– For medium- and long-term deposits, interest rate to be decided by government

– Interest rate to be denominated and payable in rupees, based on gold value

– Redumption of short-term deposits in cash or in gold

– But fractional quantity to be paid in cash

– Redumption of medium and long-term deposits only in cash

– Deposited gold can be utilised for auctioning, Central bank’s gold reserves, coins, lending

– Tax exemptions will also be extended as applicable

– Gold reserve fund to be created based on borrowing cost interest rate paid

– For jewellers, a gold metal loan account can be opened, denominated in grams of gold

– Gold mobilized under short-term option to be provided to jewellers on loan

– Delivery of physical gold for jewellers once sanctioned.

Key points of sovereign gold bond scheme

– Bonds to be issued on payment of rupees and denominated in grams of gold

– They will will have a sovereign guarantee

– Issuing agency to pay distribution costs and commission to intermediaries

– These will be reimbursed by the government

– Scheme restricted to resident Indian entities

– The cap on bonds per annum no more than 500 grams per person

– Rate of interest to be decided by government, based on market conditions

– Bonds in dematerialised and paper form

– Denominations of 5, 10, 50, 100 grams of gold

– Price may be drawn from reference rate of the central bank towards the scheme

– Notified agencies, like banks, post offices, and non-banking firms may collect/reem money

– The tenor of the bonds for five-seven years

– Bonds can also be used as collateral for loans

– Bonds to be easily sold and traded on exchanges

– Capital gains tax same as that for physical gold for individuals

– Capital gains tax to adjust for inflation

– Amount received can be used by government like borrowings

– On maturity, redemption in rupee amounts alone

– Interest rate to be calculated on value of gold at investment

– Principal amount to be redeemed at the then price of gold

– If price has since fallen, depositor can roll-over the bond for three or more years

– Deposit will not be hedged and all risks will be borne by government

– But position may be reviewed in case ‘Gold Reserve Fund’ becomes unsustainable

– Bonds to b sold by post offices, banks, non-banking firms, upon commission.

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