People with pots of gold may stay away from govt’s gold schemes

New Delhi: Large gold holders, wary of tax department’s scrutiny, may stay away from the gold monetization scheme.

However, small gold depositors at whom the scheme is primarily aimed should have no problems, said industry officials and analysts.

For this group of depositors, interest rates will be the key, they said. Temple trusts that typically hold large gold holdings could be an exception.

On Wednesday, finance minister Arun Jaitley and Department of Economic Affairs Secretary clearly stated that they do not want the gold monetization scheme to turn into a vehicle for converting black money into white money. The prevalent stringent know your customer norms will be applicable for this scheme as well, they said.

Under KYC norms, anyone opening a bank account needs an identity and address proof and the permanent account number or PAN. PAN is also mandatory in case a transaction exceeds a particular size, for instance, cash deposits exceeding Rs.50,000.

“If you roughly estimate gold holdings with Indians, more than 70% of the total holdings are small holdings by households and are less than 500 gms. These are typically purchased for weddings and social security,” said Arvind Singhal, chairman of Technopak Advisors Pvt. Ltd, a retail consultancy. “These households may not worry about tax scrutiny as they would have acquired this gold through their legitimate tax-paid income. As it is, the primary aim of the government is not to discover unaccounted wealth through this scheme,” he said.

India’s gold stock is estimated at more than 20,000 tonnes, prompting the government to look for ways to monetize the holdings and put into productive use, and also to reduce India’s import bill. India roughly imports 800-1,000 tonnes of gold every year.

In line with the budget announcement in February, the Union cabinet has cleared the gold monetization and the sovereign gold bond scheme, the government’s twin efforts at curbing gold imports. The schemes will be notified by the government after discussions with the Reserve Bank of India.

“The gold monetization scheme will have to be carefully marketed with clarity on the tax scrutiny as well as on the interest rates to attract people,” Somasundaram P.R., managing director, India, World Gold Council. “Small retail depositors who are bringing small amount of gold holdings like 30 gm or 50 gm that is bought from their tax paid income will not be questioned. However, representations were made to the government to clarify what kind of tax treatment will be there for large depositors who bring in more than 500 grams,” he said.

He added that typically, even during the tax department’s search and seizure operations, upto 500 grams of gold holdings are allowed when attributed to sources such as ‘streedhan’ received during marriage.

He also pointed out that the KYC treatment is likely to be similar to that followed in cases where gold is used as collateral for a loan.

“Even in cases where finance companies accept gold as a collateral for a loan, they ask about the sources of gold from the customer. Typically, as part of their customer acceptance policy, they accept a self declaration from the customers that says that the gold has been obtained from own sources of income,” said I. Unnikrishnan, non-executive director at Manappuram Finance Ltd. “Also, any loan more than Rs.1 lakh gets routed through a bank; so, a PAN becomes compulsory,” he explained.

He added that high interest rates will be key to the success of the gold monetization scheme and rates of 1-2% may not be enough to lure depositors.