Govt enforces KYC norms on retail purchase of gold

Finance Minister P Chidambaram's relentless drive to curb India's staggering current account deficilt (CAD) by curbing rising gold imports is finally gaining speed. The government, in a masterstroke to curb gold imports, has made an amendment to extend the purview of the Prevention of Money Laundering (PML) Act to enforce Know Your Customer norms for retail purchases of gold and precious stones. CNBC-TV18's Farah Bookwala reports.

Since a significant proportion of gold trade is executed in cash, thereby facility easy hoarding and conversion to black money, the government, has expanded the ambit of the Prevention of Money Laundering Act, with the Parliament passing an amendment effective February 15 2013.

Now all dealers in precious metals and stones will have comply with Know Your Customer (KYC) requirements and establish the identity of the owner in each leg of trade above the threshold amount.

Although the threshold amount has not been specified as yet, market understanding says that since KYC norms for banks have set the threshold limit as Rs 50,000 the same could be applicable to gold and precious stone purchases.

Currently, retail jewelers comply with KYC norms when the transaction value is above Rs 5 lakh to facilitate the deduction of 1 percent TDS.

Additionally, traders will have to maintain records for five years and retrieve the information as and when required by the regulatory authority.

Anybody found guilty of money laundering shall be liable for imprisonment which shall not be less than three years, but which may extend to seven years, and will also attract a fine.

Analysts believe this amendment will significantly curtail the unreported cash transaction in bullion trade and curtail overall imports, which on a five year average, have stood at 71 percent of the country's CAD. While retail jewllers say they expect some resistance from customers.

"We definitely expect customer resistance for any new measure," Sanjeev Bhatia, CFO of PC Jewellers told CNBC-TV18 in an interview.

So, all eyes now on what specificities are laid down in the amendment, which is expected in another 45 days.