What if you got an opportunity to unleash power of something lying dormant for long in a dark corner? We are not speaking about an unexploded WWII missile submerged in Pacific Ocean or the untapped potential of cricketer R Ashwin as a batman.
The compass is pointing to gold, in the form of bullion or jewellery, stacked, for many, in the bank lockers.
So, what’s in store?
The proposed gold monetization scheme, which found mention in the 2015 budget speech of Finance Minister Arun Jaitley, has something glittering in it. Instead of getting a head spin with the nomenclature ‘gold monetization scheme’, let’s spin the proposal to take the core out of it.
30 grams will do the trick
Look at this scenario: Rekha, a company secretary, got a gift of 100 sovereigns of gold. Yes it is a gift; not dowry from her parents on her marriage (law enforcers, breathe easy). She decides to reap the dividends of the scheme and approaches her bank. The bank after due purification test would open a gold savings account and credit 100 sovereigns or 800 grams against her name. So, the first step is done with.
Even if she has 30 grams of gold, she could have opened the account under the scheme. Ain’t that cool?
What’s the reward?
The USP of the scheme is that interest would be tax-free. When everyone is trying hard to pay less tax, this is a triple sundae.
The income from the scheme would be exempted from income tax, wealth tax and capital gains tax. Moreover, the banks have the prerogative to fix the interest rate. That’s also tempting.
Let’s take the case of Rekha and give a lowdown on interest calculation. She has deposited 800 gms of gold at an interest of, say, 5%. After one year, her credit would be 840 gms and this could be redeemed in cash or gold.
The minimum deposit period is one year and the interest would be payable after 30/60 days. Breaking of lock-in period is also allowed. Any parallels with fixed deposit?
The glistening light
- You have a hefty gold reserve sitting idle and wondering what to do with it? Of course you can sell or pawn it. But the best option is the gold monetization scheme. Why?
- The asset is with you and you have the advantage of getting interest out of the deposit.
- Losing sleep over security of gold? Though lockers are available, they come at a cost. Sometimes, as high as Rs 5,000 per year. So, many of us are forced to keep gold at home itself, which is a risk. The scheme gives a high protection cover for our gold reserves.
- Need cash on maturity? The depositor has the option of converting gold into cash on market value on maturity. Your liquidity problem taken care of.
The dark shades
- Melting issue? The idea of melting gold to monetize the same would be a dampener for many. As per the current policy draft, after the purity test, gold has to be melted. And on maturity if you have reconvert it into jewellery, you would be poorer by 5 to 10% in terms of making charges.
- Damocles? The freedom of the banks to fix interest is a double-edged sword. They may shy away from announcing an attractive interest rate as the cost of handling physical gold could be passed on to the depositor.
- Banks in a fix? Banks are at a receiving end as they are exposed to fluctuation in gold prices. This can have a telling effect on the customers as the bank’s hedging against price variations comes at a cost.
So, the package is quite enticing and can provide that extra punch in your life but with caveats. But, what’s life without the odd dampener to perk up things!
Though the draft proposal is out, the government is still working on the nitty-gritties of the scheme and the roll out is expected in a few months’ time.
So, keep your (ring) fingers crossed!