By S. Murlidharan
Firstpost, Noida, India
Wednesday, May 20, 2015
http://www.firstpost.com/business/gold-moneti...-interest-on...
From a forbidding level, except for temples and rich persons, of 500
grams, the just released draft paper allows one to deposit gold as low as 30
grams with banks and earn interest reckoned also in gold.
To wit, if a bank offers to pay 1 percent interest and you have deposited
100 grams, at the end of the year, which is the minimum term for which a lot
of 30 grams and more has to be deposited, your gold account would have grown
to 101 grams.
There will not be any tax on the monetary value of one gram of gold earned as
interest. Nor would there be any capital gains tax on the redemption amount
or gold received.
In other words, if you had deposited 100 grams valued at Rs 2,500 a gram
for one year at the end of which you get back the same gold valued now at Rs
2,600 a gram either in gold or in cash, the extra Rs 100 per gram will not
attract capital gains tax.
While exemption from capital gains tax is a continuation of the same
policy, the exemption proposed on interest is new, and could be the
much-needed sweetener to an extent.
Banks are free to choose the rate of interest which is good for
competition and depositors. So far so good.
The moot question is will the inhibitions that marred the earlier gold
deposit scheme vanish. The answer sadly is in the negative.
The metal would be melted as hitherto much to the dismay and chagrin of
women folk, to whom melting mangal sutra for example is abshagun,
inauspicious and a strict no-no. That our ladies routinely lose out to the
wicked jewelers on account of wastage but are finicky about melting on
sentimental grounds need not detain us.
The tax exemptions mean a lot for those in the 30% income tax bracket as
it would heighten the post-tax return on investments but temples and shrines
like Tirumala Tirupati Dewastanam (TTD), Shirdi Sai Baba Trust, Mata Vaishneo
Devi trust etc. are in any case tax-exempt.
And there is no guarantee that tax sleuths will not come calling hot on
deposit, asking for the source, the irritant that bedeviled the earlier
schemes as well.
Black money in this country finds sanctuary in real estate and gold. Gold
has never come tumbling out of cupboards, lofts, and lockers enticed by
interest, which pales before the tax consequences.
It is not also clear why an account holder should state upfront at the
time of deposit what he wants on redemption -- cash or gold. In all fairness,
she should have been allowed this choice at the point of redemption.
There could be other avoidable troubles as well when the process is
initiated. First, one has to find the nearest BIS-approved hallmark assaying
center for valuation.
The valuation certificate along with KYC norms fulfillment at the bank
would lead to the next step -- melting. It is not clear if bank branches
operating the scheme would all have melting facilities. It would have been
better if assaying centres did the job of melting as well.
In any case, it is heartening to note from the draft that melting will not
take more than 3 to 4 hours which is a vast improvement over the huge time
taken in sending jewelry and gold to smelters in Italy, France, etc. earlier.
All in all it's old wine in new bottle except that the bottle is a more
conveniently sized 30-gram container. But it is unlikely that even a
minuscule part of the guessstimated 20,000 metric tonnes of gold the country
has is going to come into circulation and apply the brakes on gold imports
that accentuate our current account deficit.
Under the extant scheme, hardly 4,000 kilograms have reportedly been
mobilised, a drop in the ocean. Would higher interest engendered by
competition do the trick?
But banks would be skating on thin ice, with wafer-thin margins that
additionally depend on the price of the yellow metal in the interregnum
between deposit and redemption when banks get freedom to play around with
depositors' gold.
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