13/10/2017 237 Economic Affairs | Financial Markets | View Recent Current Affairs
- The government has launched the Sovereign Gold Bond Scheme 2017-18 – Series-III, which will be issued by the Reserve Bank India on behalf of the Government of India.
- Unlike the earlier scheme, the present one will be open for a longer duration of time and the bonds will be available on tap.
- The bonds issue will remain open from October 9 to December 27, 2017, covering the festivals of Diwali and Christmas.
About the Sovereign Gold Bond Scheme:
- The sovereign gold bond was introduced by the Government in 2015. While the Government introduced these bonds to help reduce India’s over dependence on gold imports, the move was also aimed at changing the habits of Indians from saving in physical form of gold to a paper form with Sovereign backing.
- The government has raised the annual investment limit per person from 500 gm to 4 kg, while for trusts and similar entities; it has been raised to 20 kg. This higher limit will make the scheme attractive for high net-worth individuals who had not participated in earlier schemes as they found the 500 gm limit to be too small.
- This time around the discount of Rs 50 per gram of gold will be available only to those who buy it digitally or online and not from a bank branch or a post office.
- All other features of the bond continue to be the same as those earlier.
- The bonds will be for tenure of 8 years with an option of exiting from the fifth year onwards.
- The investors will be compensated at a fixed rate of 2.50% per annum payable semi-annually on the nominal value.
- For the gold buyers, buying the bond makes more sense as it will not attract the GST that physical gold will. The recent budget allowed any capital gains on redemption of sovereign gold bonds to be tax exempt at maturity. But secondary sales were subjected to taxation at 20 percent post indexation if sold on or after three years. For any sales before 3 years normal tax rates will be applicable.
- So, buying a gold bond makes more sense than buying the physical gold simply as there is a tax arbitrage as well as the bond will earn interest and will have all the benefits of any price appreciation.
- Government’s effort of introducing the gold bonds has not resulted in much success with Rs 4,500 crore being collected till June 2016 after eight tranches.
- The government had a target of raising Rs 19,000 crore in the first year but after nearly two years it has managed less than one-fourth of the target.
- A part of the reason for the underperformance was the attractiveness of physical gold over the electronic version. Buying physical gold before demonetisation was a preferred route to hide unaccounted wealth.
- However, post demonetisation and implementation of GST, which requires the jeweler to report the transaction is likely to see a better response to the current bond issue. However, removing gems and jewelry dealers from the purview of the reporting requirement of the Prevention of Money Laundering Act (PMLA) will have some impact on collection.