As Diwali draws near, the custom of purchasing gold on Dhanteras, the first day of the grand celebrations, is back in the news. The practice of buying gold is steeped is based on the belief that buying gold on this auspicious day can bring blessings from the goddess of wealth, Lakshmi, and lead to prosperity for the household. While this custom holds cultural significance, it is also an essential element of the investment strategy for numerous Indian families, making it a blend of cultural tradition and prudent financial planning.
Indians have a strong affinity for gold, particularly in physical forms such as gold coins, bars, and jewellery. However, there has been a shift towards digital gold in the form of gold ETFs (exchange traded funds), gold mutual funds, digital gold and till some time back, Sovereign Gold Bonds, which the government has not issued for a while.
Gold has garnered increased investor interest due to its reputation for safeguarding against inflation and economic instability. Throughout this year, the precious metal has continually broken price records, hitting an unprecedented high of $2,672 per ounce in September. The surge in gold prices has led to speculation about the sustainability of this upward trajectory.
Gold deposit schemes
Jewellers' gold savings schemes present a systematic approach to gradually amass physical gold. These schemes commonly entail consistent monthly contributions, accompanied by potential perks such as price reductions, rewards, or store vouchers. Customers have the option to purchase gold or silver jewellery through gold deposit schemes, allowing them to spread out their payments over several months.
These schemes are similar to systematic investment plans (SIPs) where a fixed amount is saved each month for a specific period, such as 12 months, to purchase jewellery. Big jewellery brands, such as Tanishq and Joyalukkas, often provide discounts, bonuses, in-store credits, or other benefits to customers who choose to utilise these gold schemes. This enables customers to make their gold purchases more affordable. Even small jewellers offer attractive schemes.
Like Tanishq offers Tanishq Golden Harvest plan. As per the information on the website, the plan offers a smart, secure, and convenient way to acquire the Tanishq jewellery you desire.
With this plan, one can purchase more than what you initially pay for, as Tanishq will apply a special discount upon maturity. One can easily open a Golden Harvest account online through our website or app, or by visiting your nearest Tanishq showroom.
To participate in the plan, the investors are required to make a fixed monthly instalment payment on the due date for a period of 10 months (with a minimum instalment value of Rs 2000, which can be increased in multiples of Rs 1000).
Tax implications on such schemes
"While the gold schemes can make gold ownership more accessible, it is important to understand their tax implications. For instance, if the physical gold purchased through the monthly deposit scheme is held for more than two years, it will be considered long-term capital gains (LTCG). In such cases, the investor will be subject to a lower LTCG tax rate of 12.5%. However, the indexation benefit, which is used to reduce taxable capital gains, is no longer available. On the other hand, if the physical gold is sold within two years of purchase, it will be considered short-term capital gains (STCG), and the investor will be subject to the individuals’ income slab rate. The tax treatment of discounts or benefits offered in gold schemes depends on their nature and specific circumstances," said Sujit Modi, Chief Investment Officer (CIO), Share.Market.
"Jewellers' monthly deposit schemes allow investors to accumulate gold systematically by making small, regular contributions. However, it's essential to understand the income tax rules around such schemes. If the scheme offers gold or jewellery upon maturity, there is no direct income tax on receiving the gold. However, if you later sell the gold, capital gains tax will apply. Short-term capital gains (if held for less than 2 years) are taxed at your income slab rate. Long-term gains (held for 2+ years) attract a 12.5% tax. One should note that the investor may need to account for the 3% GST on the final gold delivery while investing," said Prithviraj Kothari, Managing Director of RiddiSiddhi Bullions Limited (RSBL).
Some caution
Modi of Share.Market added investors should be cautious before investing in such schemes. "Prior to engaging in a gold scheme, individuals must conduct a thorough assessment of the jeweller's credibility, financial standing, and transparency concerning gold purity and manufacturing fees. The flexibility of payment timelines and opportunities for premature withdrawal are crucial aspects to ponder. Moreover, it is imperative for investors to be mindful of any undisclosed expenses linked to the gold schemes," Modi said.