Gold Monetisation Scheme 2026: Earn Interest on Idle Gold at Home

Gold locked away in home lockers and bank lockers earns nothing. India’s households are estimated to hold over 20,000 tonnes of gold – one of the largest concentrations of idle private wealth in the world. The Gold Monetisation Scheme (GMS), originally launched in 2015, was designed to change this. Now, with a revamp being actively discussed between the Reserve Bank of India, the Finance Ministry, and industry bodies, the scheme is back in focus.

This article explains how the existing scheme works, what the proposed changes look like, and what depositors need to know from a tax and compliance perspective before participating.

What Is the Gold Monetisation Scheme?

The Gold Monetisation Scheme is a government initiative that allows individuals, trusts, and institutions to deposit gold with designated banks. In return, the depositor earns interest on the gold deposited — similar to how a fixed deposit earns interest on cash. The scheme accepts gold in all forms: jewellery, coins, and bars. The deposited gold is melted, assayed for purity, and credited to a Gold Savings Account. Interest is calculated on the gold equivalent.

Key features of the existing scheme:

Important: The gold deposited especially jewellery is melted for purity testing. The same ornaments are not returned. What comes back at maturity is either gold of equivalent weight and purity or its cash value.

Why Has the Scheme Struggled So Far?

By March 2025, only around 38 tonnes of gold had been mobilised under the Gold Monetisation Scheme since its 2015 launch. Against the 20,000-plus tonnes sitting idle in Indian homes, this is a negligible fraction. Several reasons account for this underperformance:

Emotional attachment to jewellery – Gold jewellery in Indian households often carries generational significance. The requirement to melt jewellery for purity testing is a significant deterrent for families who hold heirloom pieces.

Modest returns – An interest rate of 2% to 2.5% on gold deposits is low compared to the appreciation potential of gold itself, especially given that gold prices have risen significantly over the past decade.

Tax and compliance concerns – Many households hold inherited gold without formal purchase receipts or documentation. Depositing such gold raises concerns about income tax scrutiny.

Awareness and operational complexity – The purity testing process, documentation requirements, and involvement of collection centres added friction that discouraged participation.

What the Revamp Proposes

Active discussions are underway between the RBI, Finance Ministry, and industry bodies including the all-India Gems and Jewellery Domestic Council (GJC). The following changes are being considered:

• Better returns: The interest rate structure is likely to be reviewed to make deposits more competitive.
• Jeweller-integrated framework: The GJC has proposed a model where jewellers become part of the deposit chain, making it easier for households to deposit through familiar, trusted channels.
• Dematerialised gold balance: Instead of requiring physical melting upfront, the proposal includes mechanisms to credit gold as a dematerialised balance – similar to how shares are held in a demat account. This directly addresses the reluctance to melt jewellery.
• End-to-end digital system: A digital tracking system covering the full chain from deposit to credit, with audit trails for transparency.
• Expanded formats: The revamped scheme will cover bullion, coins, and jewellery. In 2025 alone, approximately 280 tonnes of gold was purchased in India in investment formats such as coins and bars – indicating a growing segment open to formal financial instruments.

Tax Treatment of Gold Monetisation Scheme Deposits

This section is the most important for depositors to understand before participating. The tax treatment of GMS is different from most other investments and more favourable.

Interest Income – Fully Exempt

Interest earned on Gold Monetisation Scheme deposits – under both Short-Term Bank Deposits (STBD) and Medium and Long-Term Government Deposits (MLTGD) is exempt from income tax under Section 10(15) of the Income Tax Act. This is a significant benefit not available on most other interest-earning instruments.

Capital Gains on Redemption – Fully Exempt

Capital gains arising at the time of redemption of GMS deposits are also exempt from tax. This applies whether you receive gold or cash at maturity and covers both short-term and long-term capital gains.

What About the Gold You Deposit? – Source of Funds

This is where depositors with inherited or undocumented gold have genuine concerns. Depositing gold in a bank does not automatically trigger a tax event. However, you should be prepared to explain the source if asked, particularly for significant quantities.

The income tax department’s guidelines on gold holding limits provide some practical protection:

Gold held beyond these limits should ideally be supported by purchase receipts, inheritance records, or wealth declarations from prior assessment years. If adequate documentation is not available, a tax adviser should be consulted before depositing.

Who Should Consider Participating?

Suitable for:

• Households with investment-grade gold coins or bars purchased purely as investment no emotional attachment, can deposit and earn interest without selling.
• Senior citizens with idle inherited gold – interest income is tax-free and capital gains exemption at maturity makes this a genuinely efficient instrument.
• Trusts and institutions holding donated gold can earn interest on otherwise static assets.

Approach with caution:

• Anyone holding large quantities of gold without clear documentation of source should consult a tax adviser before depositing.

How to Deposit Gold Under the Current Scheme

1. Visit a Collection and Purity Testing Centre (CPTC) – Operated by BIS-certified refiners or designated banks. Submit gold for purity testing.

2. Purity assessment – The gold is melted and assayed. You receive a purity certificate showing net fine gold quantity.

3. Open a Gold Savings Account – After accepting the purity certificate, the fine gold equivalent is credited to your Gold Savings Account.

4. Earn interest – Interest accrues on the gold balance at the agreed rate for the chosen tenure.

5. Redemption at maturity – Choose to receive the gold equivalent or its cash value at current prices.

The Bigger Picture: Why This Matters for India

India spent over USD 45 billion on gold imports in FY 2024-25. Every tonne of gold mobilised from domestic households reduces the need for imports, eases pressure on foreign exchange reserves, and supports currency stability.

The 20,000 tonnes of idle household gold in India – valued at approximately USD 1.5 trillion at current gold prices – represents a significant untapped resource. Even mobilising 1% of this would bring 200 tonnes into the formal financial system, equivalent to nearly half of India’s annual investment gold demand.

Key Takeaways

• GMS deposits earn approximately 2% to 2.5% annual interest. Both interest and capital gains at maturity are fully exempt from income tax.
• The scheme accepts gold in all forms – jewellery, coins, and bars with a minimum of 10 grams.
• The revamped scheme is expected to introduce dematerialised gold balances, jeweller-led collection, better returns, and a fully digital tracking system.
• Only around 38 tonnes have been mobilised since 2015. The revamp aims to address barriers of emotional attachment, modest returns, and compliance concerns.
• Households with inherited or undocumented gold should obtain tax advice before depositing to understand their specific situation.

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About the Author: Diksha Chawla is the founder of FinLecture (finlecture.in), a personal finance and income tax education platform for salaried professionals in India.

Disclaimer: The views expressed are for informational purposes only and do not constitute investment or tax advice. Readers are advised to consult a qualified tax adviser for their specific situation.