Tax breaks for a bond for gold scheme, along with the massive infra spend, can put the economy on a firmer footing
Union Finance Minister Nirmala Sitharaman’s Rs 102 lakh crore infrastructure shot for the economy is all good, but how about a bond for gold scheme under the income-tax law that can save tax, along with it?
In fact, it’s an idea whose time has come -- offering complete tax immunity to capital gains from gold and gilded jewels provided they are parked in infrastructure bonds. The gains need to be locked in these bonds of say, eight years of maturity, with no allowance for premature withdrawal except through exchanges.
Consider this. India has the world’s 10th largest official gold reserves at about 618 tonnes. But this is just the proverbial tip of the iceberg.
There are reasons to believe that India is home to close to 20,000 tonnes of yellow metal with households and investors. Just imagine what India possibly can achieve if such a formidable quantity of gold that households own is added to the reserves of the Reserve Bank of India (RBI).
The World Gold Council (WGC) estimates Indian households to be holding as much as 25,000 tonnes. At current prices, this gold would be worth $1,259 billion, or about 40 percent of India’s nominal gross domestic product (GDP) in 2018-19.
A tailor-made scheme for gold is the need of the hour. It should not be a limited window as that would trigger a gold rush in reverse, which will dampen prices, spoiling the whole idea. Rather, it should be on the statute book permanently, courtesy the infrastructure bond scheme under Section 54EC of the I-T Act, catering exclusively to long-term capital gains from land or buildings or both from April 1, 2019.
Here are a few more details the government needs to consider. The interest may run 6 percent per annum. And 50 percent of interest from these bonds must be exempt from tax as an additional incentive to let go of gold.
Section 54EC allows as long as six months to invest the long-term capital gains in infrastructure bonds. Under the proposed scheme, however, investment should be almost back to back or maybe within 10 days of receipt of the sale proceeds.
These liberal tax breaks can work wonders as a lot of gold stored in dingy lofts and bank lockers might find its way into the bullion market. As it is, buyers outnumber sellers by a good margin in the gold market. If the new regime triggers sales, boosting domestic supply, the import bill of gold too would come down significantly.
Instead of encouraging immovable property owners to sell and invest in infrastructure bonds, the government must nudge them to channel their assets like gold into nation-building bonds. People must be weaned away from gold, not immovable properties.
It’s common knowledge that gold and real estate are the favourite parking spaces for black money. The gold for bond scheme can actually address this root problem.S Murlidharan is a chartered accountant and columnist. Views are personal.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.