Gold is purchased in India as a savings instrument that may be encashed instantly or exchanged for jewellery as and when required. It is further noted that these customers purchase gold coins or jewellery after paying labour charges, taxes etc., all of which are forsaken at the time of encashment or exchange. Moreover, while the people living in urban areas may have the option of other financial tools to choose from, the citizens living in the rural areas often shy away from complex financial products and therefore choose to invest in gold.
It is essential to recognise that the citizens living in the rural areas that choose to invest their savings in gold do so as it permits them an opportunity to encash the gold/jewellery immediately if the need be. It is for these very people that the new revamped Gold Savings Account (GSA) is proposed, as it would provide the citizens with the opportunity to save in gold with no losses due to labour charges and taxes at the time of encashment.
The launch of the revamped GSA is eased due to the huge success of the Pradhan Mantri Jan Dhan Yojna (PMJDY), which was dubbed as the world’s biggest financial inclusion drive. It is pertinent to point out that the beneficiaries were primarily in rural India. A GSA may be opened by banks for their customers, will go beyond the scope of GMS deposit, and allow investors and individuals to deposit INR to accumulate their savings in gold.
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The GSA shall offer the opportunity to build up investment in gold over a period of time by virtually saving in gold terms rather than INR terms. In essence, the GSA is similar to any other savings interest-bearing deposit account held at a bank or another financial institution that provides an interest rate except that the deposit made in rupees will be translated in physical gold held by the bank or the financial institution. When a customer deposits cash in his or her account, the bank will credit grams of gold. The price of gold will be based on the date on which the deposit is made. The GSA can be a linked to a demat account which would enable the linkage of digital gold accounts across banks through the proposed Bullion exchange and its vaulting infrastructure. This is similar to the current linkage in stocks, where banks, demat accounts, stock exchanges and depositaries are linked in a transparent manner.
2. Operations of the GSA
The account holders of the GSA will provide a sum of money to be invested in gold as and when desired. They can choose to redeem the gold in INR or gold weight terms. The GSA account holder would purchase gold at the prevailing market rate. The minimum investment size for purchase would be 1 gram and multiples thereof. Every new investment (buy) would reflect as credit into the account and every withdrawal (sell) is a debit. Like in a savings account, banks can issue a simple passbook to the investor showing the quantum of gold to his or her credit. The gold, when purchased, can be entered in the passbook, as a record of balance held in the gold account of the account holder. It may be noted that if redemption in physical is not possible immediately, the GSA account holders may be given the equivalent amount in INR terms till such time that the banks develop the capability of being able to do so. (For the sake of ease of understanding, this paper shall refer to the redemption in the weight of gold or in INR terms, as per the choice of the account holder). The GSA will have every quality of holding physical gold except that it is in paper form but can be converted into physical gold at a short notice as and when desired by the account holder. A depositor/investor holding the account can operate it similar to the savings account and can buy gold at the displayed price, and get the account credited with the equivalent of physical gold in grammage (of certified quality). The single quote will be displayed every day by the bank that shall indicate the price of gold for sale or purchase by the bank. Thus, the GSA will have only debit and credit entries in terms of grammage of gold, with an indication of the unit price at which the gold is bought and sold back by the depositor.
2.1 GSA Interest Payment
The bank shall pay interest on the gold purchased by the borrower at the same rate as paid to the deposits accepted under the Gold Monetisation Scheme (GMS), which shall be in sync with international gold lease rates. The interest shall be payable in the weight of gold itself (as calculated by the banks to the borrowers of Gold (Metal) Loan, (GML), based on the gold price of the last day of the month) and shall be debited to the account monthly.
2.2 GSA Redemption
The account holder shall have the option of redemption in either physical gold or in INR terms of the equivalent value of the gold being redeemed. As mentioned earlier, to begin with, banks may face some difficulty in providing physical gold in remote locations and thus may redeem the same in INR terms only. However, banks should try and build the required capability to make redemption possible in the form of physical gold itself. It may be important to point out that physical delivery may not be possible for weights less than 1 gram. In such cases, the banks may pay the equivalent amount of the gold in INR terms. Wherever physical gold is being delivered, it is imperative to point out that the appropriate import duty and taxes, as applicable, shall be charged to the account holder. In order to encourage people to make deposits in GSA, a view may be taken to exempt such deposits from capital gains tax especially where physical gold is being delivered.
2.3 Tenure of the GSA
Like in any savings account, there will be no minimum tenure and it will be left to the account holder to operate the GSA as they desire and to purchase or sell the gold acquired in the account on their own accord. It may be in form of a savings account or a recurring deposit account.
2.4 Transferring the GSA
The gold accumulated in the GSA would be permitted to be transferred to any other person or entity, through a letter to the bank requesting the transfer, provided the recipient also has a GSA. This would add to the features of the GSA and would make it a desirable financial instrument through which the citizens may invest their savings in gold.
3. Recommendations The Committee recommends:
1. Introduction of a new financial product for banks viz. Gold Savings Account, that will accept INR and credit grams of gold, with passbook facility. Such accounts may also be in form of recurring deposit accounts.
2. The suggested operational details of GSA would be:
- a. The price of gold will be the prevailing price as of the date the deposit is made (inclusive of import duty and GST).
- b. The redemption of the account can be in INR or gold weight and at applicable market price on the redemption date. No capital gains tax may be levied where redemption is made in form of gold.
- c. While there may be no restriction in terms of minimum deposit, some minimum threshold may be provided where redemption is in form of physical gold. The interest payable on GSA will be the same as the interest on gold deposits collected under Gold Monetisation Scheme (GMS), 2015. The interest can be accumulated in terms of weight of gold.
3. In case redemption in physical gold not possible, GSA account holder may be given equivalent amount in rupee terms but in due course, banks may develop capability of being able to provide physical gold if demanded.