by Mr. Harsh Roongta, Apnapaisa.com
The proposed Gold Monetisation Scheme (GMS) needs
to avoid the lacunae in the existing Gold Deposit Scheme (GDS), which could
garner only 15 tonnes.
A lot of issues with the GDS had to do with
incentives to a bank for this scheme. Conceptually, by turning this into an
open scheme across banks where they can compete, a lot of these might be
resolved. From the consumer side, a good thing is that the minimum quantity has
been bought down to 30 gram (about Rs. 90,000) in the GMS as compared to 500
gram (Nearly Rs. 15 lakh) in the GDS. The areas in which more clarity will help
in driving consumer response are:
(1) Most people think there is no capital gains
issue, since these are exempt in the GDS and are probably slated to be exempt
in the GMS as well.
This ignores the capital gains that occur when
the gold/jewellery is deposited in the scheme and is regarded as a transfer,
giving rise to capital gains at that stage (called pre-deposit capital gains).
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| Harsh Roongta, Apnapaisa.com |
What is exempt is the capital gains that arise
after the date of deposit in the scheme (call it post-deposit capital gains)
and the pre-deposit capital gains continues to be taxed. Whilst it will be
inequitable to completely exempt pre-deposit capital gains, the actual tax
payment on this account should be deferred to the time when the GMS account is
actually converted into cash/gold or transferred out in any other manner. The
actual amount of pre-deposit capital gains tax is unlikely to be very high, as the
average annual return on pure gold since 1981 has been 8.55%, whilst the cost
inflation index allowed by Income Tax Act has averaged at 7.30%.
Most people would make much less than the average
return because of the losses on account of impurity and making charges but even
if we assume the return is 8.55% annually, the pre-deposit capital gains tax is
likely to be a substantial six to seven per cent of the price of the gold as on
the date of the deposit (depending on the actual gains and the number of years
of holding).
If the consumer is required to pay this tax from
his pocket, without any actual cash flow from the conversion into the GMS , it
will be a big drag on the success of the scheme.
(2) An upfront clarification from the tax
department that makes it clear that the department will follow a laid down rule
before issuing notices in this regard will bring a lot of clarity on this
matter.
It is jarring for a consumer who has regularly
filed returns for decades in the highest tax bracket to be asked to explain the
source of gold of, say 200 gram(Worth Rs. 6 lakh).
Of course, the I - T authorities should probe any
suspected case of money laundering using the GMS but it should be done on a
more intelligent basis, after proper data analysis.
This will free the honest taxpaying retail
consumer from fear of the tax authorities, without letting the GMS turn into a
state-approved money laundering scheme.
(3) If the GMS account is being created in the
same bank in which the consumer has a fully KYC-compliant bank account that
should be allowed without specific KYC being done for the GMC account.
Also, zero balance GMS accounts should be allowed
after full KYC compliance. These steps will delink the KYC hassles, without in
anyway diluting the KYC requirements.
(4) The draft guidelines assume all consumers
want to be physically present when the
preliminary XRF machine test and the
fire assay test of the jewellery is done.
At the option of the consumer, if she /he is willing
to trust her /his bank and the bank has a board-approved procedure for collecting
the jewellery & sending it for the fire assay test (like in the current GDS),
this should be allowed.
(5) There should be perfect liquidity in the GMS
accounts where the consumer has chosen equivalent cash as the exit option (with
appropriate exit loads that may be determined by each bank
separately),including withdrawal of cash through ATM or conversion into money
instantly at the time of transfer through cheque / internet / IMPS / NEFT and /
or any other mobile payment that may come into vogue.
It will make this kind of holding more liquid and
much safer than physical gold, and at the same time allow the consumer to enjoy
a small interest payment in gold.
The GMS accounts where the consumer has chosen
physical gold as the exit option should have automatic extensions/rollovers on
maturity, with lower or no exit loads on such rollovers/extensions.
(6) The process to get loans against a GMS
account should be simple just like loan against shares with electronic
pledge/depledge possible, if so required by the consumer.
None of these suggestions require relaxation of
any KYC compliance or foregoing of any tax revenues by the government.
These suggestions if implemented can go a long
way in ensuring that GMS does not go the same way as the GDS, at least as far
as the consumer side of the equation is concerned.
About the author..
The author Mr. Harsh Roongta is director of
Apnapaisa.Com
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