The Centre has turned a great sales person. To make its pet gold bond scheme more attractive, it has exempted investors in these bonds from capital gains tax at the time of redemption.

Currently, investment into gold ETF units is taxed for capital gains at 20 per cent, with indexation benefit for long-term gains.

Tepid response The Centre had launched the sovereign gold bond scheme in the 2015-16 Budget, mainly targeting investors who consume about a third of the gold imported into India.

It had thought the scheme would feed the gold-hungry investors and reduce demand for gold — and thus dollars — and trim down its current account deficit.

Since launch, two tranches of the gold bond have been issued. In both the issues, the interest rate was 2.75 per cent payable semi-annually on the initial value of the investment and the minimum investment was 2 grams with a tenure of eight years.

It was also maintained that the bond will be treated as physical gold for taxation purpose and capital gains tax will be applicable.

However, in a surprise move, the Finance Minister added more carrots to the scheme on Monday.

Any individual who has invested in this bond will not be taxed for the capital gains he makes at the time of redemption.

Already, there are many attractions in the sovereign gold bond scheme. One, as it comes with a sovereign guarantee, the risk is zero.

Also, with a coupon on it, there is a fixed annual return on it in addition to appreciation in price if any. Both these features are not present in gold ETFs of mutual funds.

Now, with capital gains tax exemption, gold bonds are clearly the best investment option in gold.

However, do remember that interest income from these bonds will be taxed.

Gold monetisation The gold monetisation scheme, also introduced a year ago along with gold bonds by the Finance Minister, is more attractive now, too.

The scheme, envisaged as a way to monetise gold held by Indian households, hasn’t taken off well.

Till January this year, the Centre collected just about 0.9 tonne of gold (domestic households are sitting on an estimated 20,000 tonnes).

So, to give the scheme a push, the Finance Minister announced that interest earned on this deposit as well as capital gains arising from the gold will be tax exempt.

The gold monetisation scheme is a deposit scheme of banks where you will be paid interest on the weight of gold you give.

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