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KYC for gold purchases: How to keep your data safe while dealing with non-financial entities

Any cash transactions to purchase gold would require a government-issued identity card

January 11, 2021 / 11:20 AM IST

Shopped for gold from your favourite jewellery outlet and faced a barrage of requests for identify proofs and documentation?

The jewellery retailer may have been going beyond the brief.

Now, the Ministry of Finance has clarified that the Government has not mandated any new documents or paper trail while making purchases.

The Prevention of Money Laundering Act (PMLA) guidelines have mandated know-your-customer documentation for purchase of jewellery in cash.

Currently, if you buy jewellery worth more than Rs 2 lakh, you need to submit copies of your photo IDs. Since December 28, jewellers had been requesting KYC documents for cash purchases of less than Rs 2 lakh. But if you buy jewellery through credit and debit cards or cheques no documentation was needed.


“Any cash transactions to purchase gold would require a Government-issued identity card, be it a photocopy of passport, driver’s license, PAN or Aadhaar card after the Government issued the notification under the PMLA,” Rajiv Popley, Director of Popley Group of jewellers says.

The rise in gold prices has dampened jewellery demand. Would the confusion around documentation while buying gold worsen demand?

Entities Capturing data

Starting October 1, 2020 bank transaction limits have been introduced. Also, debit and credit card transaction limits have kicked in.

Union Budget 2020 also laid out the rules for ensuring donations to charitable trusts are linked to the PAN to enable pre-filled donation details in your income tax returns. The government has also notified tax collection at source at 0.075-1 percent, to be deducted by the seller if you purchase goods worth Rs 50 lakh or more in a year.

While the jewellery sector seems to be the first to ask for documents prior to cash purchases, many more could be asking for the same in the coming years.

“The identity of the person has to be captured with respect to cash transactions. While currently only jewellery purchases have been subjected to this norm, it could gradually be introduced in other industries such as electronics and apparel,” says Popley.

Sharing KYC data with firms other than banks

Many buyers appear to be reluctant to part with their PAN or Aadhaar copies fearing data misuse. And not without reason.

A Moneycontrol reader shared an incident. A copy of his PAN card, which he had submitted to a shop to acquire a mobile SIM card, was misused to create a benami account in a bank branch in another city by altering the picture in the PAN through multiple photocopies. Later, a fraudulent cheque from a company was deposited in that benami account.  “While the Government has issued a notification, consumers do not want to part with the KYC documents with non-financial institution,” says Surendra Mehta, National Secretary of India Bullion & Jewellers Association.

“If someone has your documents, they can very well get a loan issued or open a bank account. If they know your annual income through tax records, they could even hold you ransom,” says Sudhir Kaushik, co-founder at TaxSpanner.com.

But Mehta says that jewellers – or other firms who are not banks but are mandated to collect document proof – have other challenges. “While banks have access to data through Government-approved data-linked software, jewellers have no means to verify the genuineness of documents.”

How to secure your documents

While documents would have to be shared, you can be selective of what you share and how you do so. Cybercrime expert Sachin Dedhia, founder of Skynet Secure Solutions suggests downloading our virtual identity proof through the Aadhaar portal, instead of handing over a photocopy of your Aadhaar card. “The virtual Aadhaar card doesn’t mention the Aadhaar number,” he says.

As jewellers are still working out the modalities of the new move, a one-time password to verify your Aadhaar could be called for in the future.

But do not offer biometric evidence while you purchase. “Be wary when someone requests you to verify Aadhaar details through biometric mode, as one is never sure how such data is preserved; and, there are chances of data leakage, especially in industries that do not have a strong regulatory body such as Reserve Bank of India is overseeing banks,” Dedhia warns.

Moneycontrol’s Take

The reporting of specified financial transactions is expected to undergo change with a condition of steeper tax rate for those spending more than Rs 20,000 in a year on hotels, Rs 1 lakh or more for school fees and electricity bills and not quoting PAN or, worse, not filing tax returns.

Experts say that state-owned utilities may be given access to status of tax filing and PAN information just like scheduled commercial banks have been authorized. But private electricity providers, hotels, schools and even goods sellers, jewellers, artists might not have direct access to this data.

As more non-financial entities ask for your PAN and Aadhaar copies, data security would be a challenge. But here’s what you can do to try your best to make sure your document is earmarked only for the purpose for which you have submitted it.

-Write across your photo identification copy clearly the purpose for which you are giving it. For instance, ‘Jewellery Purchase’. Put down a date on it as well.

-Since your date of birth is mentioned in most documents, it is best to change passwords and PINs that are linked to your date of birth in your passwords.
Khyati Dharamsi
TAGS: #Gold #kyc #Tax
first published: Jan 11, 2021 11:20 am

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