As gold imports take a hit, industry looks for ways to make deposit schemes attractive

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MUMBAI: Amid a crash in gold imports following the lockdown, the government has sounded out jewellers and bullion dealers on ways to tap idle gold lying with Indian households.

Among the proposals by the industry are aligning the income tax law with gold deposit scheme, raising gold holding limits under ‘Streedhan‘, tweaking the gold monetisation scheme to make it more attractive, and giving greater flexibility to local refineries to scale up as part of a broader gold policy. Some of these suggestions are being examined by the government, two industry sources who have had discussions with senior government officials told ET.

The existing gold monetisation scheme is yet to take off, garnering deposits of only 20 tonnes of gold till now. Private gold stock in India is estimated at 25,000 tonnes which is worth Rs 110 lakh crore. “Families accumulate gold over the years, and even if it’s purchased with legitimate earnings, there may not be adequate documentation to back this. So, many are reluctant to participate in the revamped gold deposit scheme due to fears that they may be questioned by tax officials later,” said a jeweller.

In this context, the Gem & Jewellery Export Promotion Council (GJEPC) has proposed that the government should link the gold monetisation scheme (GMS) with the Income Tax Act which states that gold jewellery to the extent of 500 grams per married women, 250 grams per unmarried women and 100 grams per male member of a family need not be seized. Such seizure, according to a 2016 directive, would not be carried out “even if prima facie, it does not seem to be matching with the income record of the assessee” .

Flexible rules necessary

The industry also feels that these limits which were fixed in 1994 should be revised to 1 kg, 500 grams and 200 grams, respectively. The existing gold deposit scheme allows a customer to deposit idle gold to earn interest but it lacks flexibility.
“The deposit certificates under GMS should be made tradable, as is not the case now, in demat form with certain tracking mechanism. This will give the certificates the feature of liquid instruments. Also, why not reduce the minimum deposit to 10 grams instead of 30 grams,” said another industry source. According to him, instead of a plain amnesty window – as was announced in the past with little results – the industry is asking for a more effective scheme within the contours of regulations on gold import, declaration and taxability of income and wealth and prevention of money laundering.

Bullion import by banks and import of dore bar (a semi-pure alloy) by importers have dramatically come down with the Covid-induced lockdown.

“The physical demand from the jewellery trade is being met from the recycling of jewellery scrap by gold refiners. If the GMS is incentivised for banks, old gold from domestic holdings can meet the country’s requirement of new gold. Banks should be permitted to open gold metal account for customers,” said James Jose, MD of CGR Metalloys.

Encourage refinery projects

Of the total gold imports, close to 40% is dore imports by refiners while the rest is finished gold by banks. Of the 29 refineries, 15 have dore import licence. In the past, industry had proposed encouraging large greenfield refinery projects like UAE and China to allow export of refined gold from India.

“First, banks should be permitted to buy ‘Indian good delivery’ bullion from BIS licensed gold refiners instead of buying from refineries abroad. In that case, customers and jewellers can sell more of their old gold to local refiners for conversion to bullion,” said Jose who is also the secretary of the Association of Gold Refineries and Mints.

MCX is putting in place a plan to enable locally refined gold to be delivered via its futures and options contracts.

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Tagged Bank for International Settlements, gold deposit scheme, gold imports, Gold refiners, streedhan, the association of gold refineries, The Gem & Jewellery Export Promotion Council

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