Buy gold using monthly schemes of Tanishq, Joyalukkas, Senco Gold and others this festive season

Buying gold through monthly deposit schemes of jewellers? Know income tax rules before gold investment

Buying gold during the festive season is a longstanding tradition in India. Moreover, Gold is still considered a reliable and stable investment option for many families in India. Having said that, other precious metals, such as silver, are also considered an alternative investment option. You can buy gold or silver jewellery through gold deposit schemes that let buyers spread out their purchase over several months. Gold deposit schemes are very similar to any systematic investment plans — you save a fixed amount every month for a specific tenure, say 12 months, and use that amount to purchase jewellery. The jewellery store typically offers discounts, bonuses, in-store credits or other benefits to those who opt for such gold schemes. Several well-known jewellers including Tanishq and Joyalukkas offer such gold deposit schemes to make your gold purchase affordable.

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Before we delve into the taxation rules, let's under what a gold deposit scheme is with an example.

What are gold deposit schemes run by jewellery stores?

The scheme by whatever name it is called, is more like a loyalty program- you deposit money with a jewellery store and on maturity buy gold from that jewellery store.

According to the Tanishq website, “Tanishq Golden Harvest is a smart, secure and convenient way to own the Tanishq jewellery you desire. Through this plan, you can buy more than what you pay for because Tanishq will add a special discount upon maturity. You can open a Golden Harvest account online using our website or app or visiting your nearest Tanishq showroom. You must pay a fixed instalment amount on the due date every month for 10 months (minimum instalment value - Rs 2000. It can go up to any amount in multiples of Rs 1000).”
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Aksha Kamboj, VP of India Bullion & Jewellers Association (IBJA) and Executive Chairperson of Aspect Global Ventures Pvt. Ltd says, "Such schemes are beneficial to the interest provided the schemes are run transparently and the instalments made by the customer are retained by way of gold in the custody and custodian certificates are regularly published by the jeweller. These schemes do help customers to make SIP for expensive commodities like gold."

Do you need to pay income tax on gold deposit schemes at jewellery stores?

According to a Chartered Accountant (Dr.) Suresh Surana the question of how and if income tax provisions apply to these monthly gold deposit schemes depends on the understanding of the nature of such discount/in-store credit/other benefits given by the respective jewellery store.

S. Sriram, Partner, Lakshmikumaran & Sridharan, says, “Discounts/promotions offered through such gold schemes to the larger public or existing customers would not attract any additional income tax liability. However, if discounts are offered to a specific group of people, say employees/relatives or employees, the discounts can be taxable as income of the buyer.”

Know when you have to pay tax for investing in gold deposit schemes

Surana says: “If the discount is considered a reduction in the price of the jewellery/ making charges the taxpayer purchases or incurs, it typically does not constitute taxable income for the individual as it is simply a price concession. However, if the discount is considered as a cash benefit or incentive for joining the scheme, it might attract the applicability of Section 56(2)(x). Section 56(2)(x) of the Income Tax Act, 1961, provides that any benefit received without consideration (like discounts) can be subject to tax if it exceeds Rs 50,000 in aggregate during the financial year. However, since this discount is applied directly to the making charges and is not received as cash or a monetary benefit, it generally would not be treated as taxable income under this provision.”

Do you have to pay tax if the jeweller offers you a discount on making charges of gold jewellery?

Joyalukkas Jewellers: According to the Joyalukkas website, you get the benefit of zero making charges up to 18% for gold, silver, gold coins and gold bars from them and up to 50% off on making charges for Diamonds, Rose cut and Precious Jewellery.

Surana says, “The discount on making charges is essentially a reduction in the price charged for the service of crafting jewellery. We understand that this is not a cash benefit but rather a concession on the cost of making the jewellery. Thus, the discounts on making charges provided by Joyalukkas for enrolling in their monthly gold deposit scheme are unlikely to be taxed as income for an individual since they do not constitute a cash benefit. However, it's essential to ensure that if the jewellery store offers any other benefits or cashback received then these are to be evaluated separately for tax implications."

Joyalukkas-Easygold-schemeJoyalukkas-Easygold-schemeSource: Source: https://www.joyalukkas.in/easygold-scheme

Special discount on gold deposit schemes by gold jewellers: All you need to know about income tax rules

Tanishq: According to the Tanishq website, “After 10 months, you will be eligible for a special discount of up to 75% of the 1st instalment value paid. You must mandatorily close the account within 400 days from the date of opening your Golden Harvest account.”

“This discount (Tanishq) is contingent upon the enrollment in a scheme and is based on the amount paid in instalments. For instance, if an individual pays Rs 1,000 as the first instalment, they may receive a discount of up to Rs 750 on their jewellery purchase after 10 months. If such discount received exceeds Rs 50,000 in aggregate during a financial year, it could potentially fall under Section 56(2)(x), which deals with gifts and benefits received without consideration. However, since this discount is tied to a purchase and not received as cash or a gift, it is unlikely to be classified as taxable income unless there are additional monetary benefits that exceed the specified thresholds,” says Surana.

"The increase in monthly deposits at jewellery retailers such as Tanishq, Reliance Retail, and Senco Gold indicates that some customer segments are beginning to choose real gold purchases over financial gold products. It does not, however, mean that sovereign gold bonds or gold exchange-traded funds have lost flavor with investors. Instead, it appears that the market is segmenting, with several groups selecting different gold products according to their goals. For example, some people want actual gold for practical and cultural reasons, while others continue to choose bonds or exchange-traded funds (ETFs) for their sole financial benefit," says Palka Arora Chopra, Director of Master Capital Services.

Gold deposit: Pay 12 instalment, get one free; do you need to pay income tax on such schemes?

This is another type of monthly gold deposit scheme run by medium-scale jewellers where you pay 2 monthly instalments, and the jewellery store typically pays the 13th instalment. You can use this money to purchase jewellery from the store.

Surana says, “Generally, in such schemes, customers make 12 monthly payments toward their gold purchase. After completing these payments, they receive an additional instalment (the 13th instalment) at no extra cost, which they can use to buy gold or in some cases, they get a discount on the jewellery-making charges. For instance, if each instalment is for Rs 1,000, the customer effectively pays Rs 12,000 over 12 months and receives an additional Rs 1,000 worth of gold or discount of such value.”

Applicability of income tax: “The benefit of receiving such 13th instalment effectively acts as a discount on the purchase price of gold or making charges. Generally, this discount is not treated as income but rather as a reduction in the purchase cost and therefore may not be taxable as "Income from Other Sources". Please note that as the schemes could be specific to such local and medium-scale jewellery shops, they need to be evaluated on a case-to-case basis for their exact tax implications,” says Surana.

"Under the Companies Act of 2013, SEBI issued directions about specific jewellery company schemes that were deemed public deposits. The main problem was with "Gold Savings Schemes" or similar payment plans that certain jewellery retailers provided to their clients. Customers might pay money in installments under these programs. After the term, they may purchase gold or jewellery from the business—often with extra bonuses or discounts. To make it clear that these plans should be governed by the Companies Act's public deposit regulations, SEBI intervened. Due to jewellery companies’ disregard for public deposit requirements, SEBI issued directions stopping such programs until the companies followed the legal framework required to take public deposits," says Chopra from Master Capital Services.
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This story originally appeared on: India Times - Author:Faqs of Insurances