Gold Monetization Scheme Explained: The Gold Monetization Scheme (GMS) is a Government of India initiative that enables eligible resident depositors to place idle gold with designated banks instead of leaving it unused in lockers or household storage. Rather than selling gold jewellery, eligible participants can earn interest in qualifying deposits while the gold is put to productive use within the financial system, subject to the applicable scheme provisions.

Under the current framework, fresh deposits are generally accepted under the Short-Term Bank Deposit (STBD) category offered by designated banks, while previously accepted Government deposits continue under their original terms until maturity.

This guide explains how GMS works, eligibility, the deposit process, interest calculation, tax benefits, practical considerations, and how it compares with a gold loan for different financial requirements.

What Is the Gold Monetization Scheme?

The Gold Monetization Scheme (GMS) was launched by the Government of India in September 2015 to mobilise idle gold held by households and institutions. Instead of keeping gold unused, eligible residents can deposit it with designated banks and earn interest while the gold is utilised within the formal financial system.

The scheme was originally introduced with multiple deposit categories under the Revamped Gold Deposit Scheme (R-GDS) and supported by the Revamped Gold Metal Loan Scheme (R-GML). However, following changes announced in March 2025, fresh deposits are generally accepted only under the Short-Term Bank Deposit (STBD) category offered by participating banks. Earlier Medium-Term and Long-Term Government Deposits continue according to the terms applicable when those deposits were accepted.

Eligible deposits generally begin from 10 grams of gold of 995 fineness after purity assessment. Jewellery, coins, and bars may be accepted, subject to the scheme guidelines, successful purity testing, and the participating bank’s operational requirements.

For households holding gold that is unlikely to be used in the foreseeable future, the Gold Monetization Scheme India provides an opportunity to generate returns without permanently disposing of the underlying asset.

Types of Gold Deposits Under GMS

The structure of the Gold Monetization Scheme has evolved over time. The table below reflects the current framework for deposit categories.

Redemption Options

The redemption process depends on the deposit category and the terms applicable to the specific deposit.

• Short-Term Bank Deposits (STBD) generally allow redemption in gold or its Indian Rupee equivalent at maturity, subject to the participating bank’s terms and prevailing scheme guidelines.
• Existing Medium-Term and Long-Term Government Deposits continue under their original redemption provisions until maturity.

Premature closure, where permitted, is generally subject to the applicable lock-in period, revised interest calculations, and the terms governing the respective deposit.

Before opening a GMS account, depositors should review the latest operational guidelines issued by the participating bank and the applicable Government notifications.

How to Deposit Gold Under GMS: Step by Step

The gold deposit process is designed to ensure transparency in purity assessment, documentation, and deposit acceptance.

Step 1: Confirm Eligibility

The scheme is available to resident Indians, including individuals, Hindu Undivided Families (HUFs), trusts, mutual funds, charitable institutions, and other eligible resident entities. Non-Resident Indians (NRIs) are currently not eligible to participate.

Step 2: Visit a BIS-Certified Collection and Purity Testing Centre

Take the eligible jewellery, coins, or bars to a Collection and Purity Testing Centre (CPTC) recognised under the scheme and certified by the Bureau of Indian Standards (BIS). These centres perform the initial purity assessment before the deposit is processed.

Step 3: Purity Assessment

The gold is tested in the depositor’s presence to determine its purity. After assessment, the accepted quantity is converted into 995 fineness gold, and a deposit receipt is issued for the eligible quantity.

Since jewellery deposited under GMS is melted during the refining process, the original ornament cannot be returned in its existing form.

Step 4: Open the Deposit

Using the receipt issued by the CPTC, the depositor approaches a designated participating bank to open a Short-Term Bank Deposit (STBD) account, where available.

The bank generally completes the account opening after verifying the documentation and receiving confirmation from the testing centre. Processing timelines may vary across banks.

Step 5: Interest Starts Accruing

Interest generally begins accruing from the date the gold is converted into tradable standard gold bars or 30 days after receipt at the CPTC, whichever occurs earlier, subject to the applicable operational guidelines.

Step 6: Redemption at Maturity

At maturity, the depositor may choose the available redemption option applicable to the deposit, subject to the participating bank’s terms and the prevailing scheme framework.

Worked Example: Depositing 100 Grams Under STBD

Suppose a household owns 100 grams of gold jewellery that has remained unused for several years.

The depositor first visits a BIS-certified CPTC, where the jewellery is tested for purity. After melting and refining, the eligible quantity is converted into 995 fineness gold, and the depositor receives a deposit receipt.

The receipt is then submitted to a participating bank offering the Short-Term Bank Deposit (STBD) under the Gold Monetization Scheme. After completing the required documentation and verification, the bank opens the deposit account.

Interest begins accruing according to the applicable commencement rules and the interest rate notified by the participating bank. Instead of leaving the gold idle for years, the depositor is able to earn a return on the qualifying deposit while retaining the benefits available under the scheme.

At maturity, redemption takes place according to the applicable STBD terms, allowing the depositor to receive the available redemption option provided under the prevailing scheme guidelines.

Editorial Note: The availability of the Gold Monetization Scheme, participating banks, deposit acceptance, interest rates, and operational procedures are subject to Government of India notifications, Reserve Bank of India guidelines, and the policies of designated banks. Applicants should verify the latest scheme framework before initiating a deposit.

Interest Rates and Tax Benefits

One of the key reasons eligible depositors consider the Gold Monetization Scheme is the opportunity to earn returns on idle gold while benefiting from the tax treatment available under the scheme. Unlike gold kept in lockers or household storage, eligible deposits under GMS may generate interest over the chosen tenure, subject to the applicable scheme rules and the participating bank’s terms.

How Interest Rates Work

Interest rates under the current framework depend on the deposit category.

• Short-Term Bank Deposit (STBD): Interest rates are determined by the participating bank. They are generally linked to international gold lease rates and prevailing market conditions rather than being fixed by the Government of India. As a result, the applicable rate may differ from one bank to another.
• Earlier Medium-Term and Long-Term Government Deposits: These categories are no longer open for fresh deposits. Existing deposits continue under the interest rates and terms applicable when they were accepted.

Since interest rates are subject to change, depositors should confirm the prevailing rate with the participating bank before opening a deposit account.

Tax Benefits

The Gold Monetization Scheme provides certain tax benefits under the applicable legal framework.

• Interest earned on eligible GMS deposits is exempt from income tax under the prevailing provisions.
• Capital gains arising from the appreciation in the value of the deposited gold are generally exempt during the deposit period, subject to applicable tax laws.
• Wealth tax was originally exempt for eligible GMS deposits. Although wealth tax has since been abolished in India, this formed part of the original scheme provisions.

These benefits distinguish GMS from holding physical gold, which generally does not generate income while remaining idle.

Gold Deposit Certificate as Loan Collateral

A useful but less widely known feature of the scheme is that the Gold Deposit Certificate issued by the participating bank may be accepted as collateral for a loan, subject to the lender’s internal policies, credit assessment, applicable regulations, and documentation requirements. This may allow eligible depositors to access liquidity without necessarily closing the deposit before maturity.

GMS vs Gold Loan: Which Option Suits You?

Although both options involve gold, they serve different financial purposes. Choosing between a Gold Monetization Scheme deposit and a gold loan depends largely on whether the priority is earning returns on idle gold or accessing funds against pledged jewellery.

The Gold Monetization Scheme is generally more suitable for individuals who have idle gold that they do not expect to use for an extended period. Instead of remaining unused in storage, the gold may generate interest while continuing to form part of the depositor’s overall wealth, subject to the applicable scheme conditions.

A gold loan, by contrast, is designed for borrowers who require immediate access to funds while continuing to own their jewellery. Eligible borrowers pledge household gold jewellery with a lender, and the loan amount is determined after evaluating the purity and value of the pledged gold, applicable loan-to-value (LTV) limits, documentation, and internal credit assessment. Borrowers repay the loan according to the agreed terms, after which the pledged jewellery is released. Depending on the lender, borrowers may also have access to different repayment options, such as regular EMIs, interest-only payments with principal at maturity, or bullet repayment structures, subject to product availability and eligibility.

Those seeking short-term liquidity may review the features of IIFL Finance’s gold loan products, including eligibility, documentation requirements, repayment options, and applicable terms and conditions, before making a borrowing decision.

Limitations to Know Before You Deposit

While the Gold Monetization Scheme offers several potential benefits, understanding its practical limitations can help depositors make a more informed decision.

• Jewellery is permanently melted during processing. Once purity testing and refining begin, the jewellery is converted into standard gold bars. Its original design or sentimental value cannot be recovered.
• Lock-in conditions apply. Premature withdrawal, where permitted, may be subject to lock-in periods, revised interest calculations, or other conditions specified by the applicable scheme.
• STBD interest rates may vary. Since participating banks determine Short-Term Bank Deposit interest rates, returns may differ across banks and may not always be comparable with other fixed-income investment products.
• Availability may be limited. BIS-certified Collection and Purity Testing Centres (CPTCs) and participating bank branches may not be available in every location, particularly in smaller towns.

Evaluating these factors alongside the potential benefits can help determine whether GMS aligns with an individual’s financial objectives and the intended use of their gold holdings.

Conclusion

Gold has long been regarded as a valuable household asset, but unused jewellery does not typically generate income while it remains in storage. The Gold Monetization Scheme provides an opportunity for eligible residents to place qualifying gold into the formal financial system and earn returns, subject to the applicable scheme rules and participating bank policies.

This guide has explained what the Gold Monetization Scheme is, who can participate, how the deposit process works, the current deposit framework, interest calculation, tax benefits, the use of Gold Deposit Certificates as collateral, the differences between GMS and a gold loan, and the practical limitations that should be considered before depositing gold. Reviewing the latest Government notifications and the participating bank’s operational guidelines before making a decision can help ensure that the chosen option aligns with individual financial goals and liquidity requirements.

Disclaimer : The information in this blog is for general purposes only and may change without notice. It does not constitute legal, tax, or financial advice. Readers should seek professional guidance and make decisions at their own discretion. IIFL Finance is not liable for any reliance on this content. Read more