What is the full form of GMS?

Introduction

Gold Monetization Scheme (GMS) was launched by the Government of India in 2015 to encourage people to deposit their idle gold holdings in banks in order to mobilize the gold and put it to productive use. The scheme is aimed at reducing India's dependence on imported gold, which has been a major contributor to the country's trade deficit.

The minimum amount of gold that can be deposited under the scheme is 30 grams, and there is no maximum limit. The tenure of the deposit can be anywhere between 1 year and 15 years, with the option to prematurely withdraw the deposit after a minimum lock-in period of 3 years.

At the end of the deposit tenure, the depositor can choose to receive the principal amount plus the interest in cash or in the form of gold.

Eligibility and Requirements of GMS

The eligibility and requirements for the Gold Monetization Scheme (GMS) in India are as follows −

Eligibility

• Resident Indians (Individuals, HUFs, Trusts, and Companies) can deposit their gold under the GMS.

• The gold to be deposited should be in the form of bars, coins, or jewellery (excluding stones and other metals).

• The minimum quantity of gold that can be deposited is 30 grams. There is no maximum limit.

Requirements

• The gold to be deposited should be of at least 995 fineness (purity).

• The depositor must provide a valid identity proof (Aadhaar card, PAN card, Voter ID card, etc.) and address proof (passport, utility bill, etc.) to the bank.

• The depositor must also provide a declaration of the ownership of the gold being deposited.

• The depositor has the option to choose the form in which they want to receive the interest on their deposit - cash or gold.

• The deposit tenure can be anywhere between 1 year and 15 years, with the option to prematurely withdraw the deposit after a minimum lock-in period of 3 years.

• The depositor will receive the interest on their deposit based on the prevailing market rates for gold.

• The gold deposited under the GMS will be tested for purity and then refined by the bank.

• At the end of the deposit tenure, the depositor can choose to receive the principal amount plus the interest in cash or in the form of gold.

• The scheme is exempt from capital gains tax, wealth tax, and income tax on interest earned.

Benefits of GMS

The Gold Monetization Scheme (GMS) in India offers several benefits for depositors and the economy as a whole −

• Earn interest on idle gold − Depositors can earn interest on their idle gold holdings, which can otherwise remain unproductive.

• Safety and security − Depositors can deposit their gold with designated banks, which are highly secure and regulated institutions, ensuring the safety of their gold.

• Low risk − Depositors do not have to worry about the risks associated with storing gold, such as theft or loss.

• Liquidity − Depositors can use their gold deposits as collateral for loans and other financial transactions, providing them with liquidity.

• Reduce dependence on imported gold − The scheme can help reduce India's dependence on imported gold, which has been a major contributor to the country's trade deficit.

• Promote domestic gold refining − The gold deposited under the GMS is refined domestically, which can help promote the growth of the domestic gold refining industry.

• Boost the economy − The mobilization of idle gold holdings can help boost the economy by increasing the availability of funds for productive use.

• Tax benefits − The scheme is exempt from capital gains tax, wealth tax, and income tax on interest earned, providing depositors with tax benefits.

Process of GMS investment and withdrawal

The process of investing and withdrawing from the Gold Monetization Scheme (GMS) in India is as follows −

Investment process

• Identify a bank that is designated to accept gold deposits under the GMS.

• Visit the bank and submit the required documents, including identity and address proof, a declaration of ownership of the gold, and the details of the gold being deposited.

• The bank will then test the purity of the gold and credit the equivalent amount in grams to the depositor's account.

• The depositor will then start earning interest on the gold deposit based on the prevailing market rates.

Withdrawal process

• The depositor can choose to prematurely withdraw the deposit after a minimum lock-in period of 3 years.

• To withdraw the deposit, the depositor must visit the bank and submit a written request for withdrawal.

• The bank will then test the purity of the gold and credit the equivalent amount in grams to the depositor's account.

• The depositor can choose to receive the principal amount plus the interest in cash or in the form of gold.

• If the depositor chooses to receive the amount in cash, the bank will credit the amount to the depositor's bank account.

FAQs

What is GMS?

Ans: GMS stands for Gold Monetization Scheme. It is a scheme launched by the Indian government in 2015 to mobilize the gold held by households and institutions in India and to use it for productive purposes. Under this scheme, individuals and entities can deposit their idle gold with designated banks in India for a specific period and earn interest on it.

Is GMS beneficial?

Ans: For individuals, GMS can help them earn interest on their idle gold holdings, which otherwise may not generate any returns. This can provide them with an additional source of income and help them realize the true value of their gold. For the economy, GMS can help reduce the country's dependence on imported gold, which is a significant contributor to the trade deficit.

What are the disadvantages of this scheme?

Ans: While the Gold Monetization Scheme (GMS) in India has several benefits, there are also some potential disadvantages that individuals may need to consider before participating in the scheme like low interest rates, lock-in period, purity testing, market risks, limited availability, and lack of awareness.