Indian households are estimated to hold somewhere between 20,000 and 25,000 tonnes of gold, much of it sitting in lockers and cupboards, earning nothing while it sits there. The government’s Gold Monetisation Scheme exists specifically to change this, letting you deposit that idle gold with a bank and earn interest on it, much like a fixed deposit. Yet since its 2015 launch, barely 38 to 39 tonnes have actually been mobilised through the scheme, a tiny fraction of what is sitting idle. Here is how the scheme actually works today, what it can realistically earn you, and why so few people have taken it up.
What Is the Gold Monetisation Scheme?
The Gold Monetisation Scheme, or GMS, is a government initiative that allows individuals, HUFs, trusts, and institutions to deposit physical gold, whether jewellery, coins, or bars, with an authorised bank. The bank tests and refines the gold, and in return, the depositor earns interest over the chosen tenure. The core idea is straightforward: instead of gold sitting idle, it enters the formal financial system, reducing the country’s need to import fresh gold while giving depositors a return on an otherwise dormant asset.
How Does the Process Actually Work?
If you wanted to deposit gold under the scheme, the general process looks like this:
- Take your gold, generally a minimum of 10 grams, to an authorised Collection and Purity Testing Centre, or CPTC, or directly to a participating bank
- Your gold is tested for purity and melted down into standard form
- Once verified, the equivalent value is credited to a gold deposit account in your name with the bank
- You earn interest over your chosen tenure, and at maturity, you can typically choose to redeem either in gold or in cash, depending on the option selected at the start
The melting step is worth pausing on, since it is central to why many families hesitate to use this scheme, something we will come back to shortly.
What Interest Rate Can You Actually Earn Today?
This is where a lot of outdated information circulates, so it is worth being precise. The scheme originally had three tiers: a Short-Term Bank Deposit running 1 to 3 years, a Medium-Term Government Deposit running 5 to 7 years at a fixed 2.25 percent, and a Long-Term Government Deposit running 12 to 15 years at a fixed 2.50 percent.
As of March 26, 2025, the RBI discontinued the Medium-Term and Long-Term Government Deposit options for any new deposits. If you see a figure of 2.25 percent or 2.50 percent quoted for this scheme, that rate applies only to deposits made before this cutoff date and does not reflect what a new depositor can access today.
For new deposits now, only the Short-Term Bank Deposit option remains available, with a tenure of 1 to 3 years. The interest rate for this option is not fixed by the government anymore. It is set individually by each participating bank, similar to how banks set their own fixed deposit rates, and tends to be considerably more modest, often in a range of roughly 0.5 to 0.7 percent depending on the bank. Always check the specific rate offered by your own bank before depositing, rather than relying on older figures still floating around online.
What Are the Tax Benefits?
This is genuinely one of the scheme’s stronger points. Interest earned under the Gold Monetisation Scheme is exempt from income tax under Section 10(15)(vi). Additionally, since GMS deposit certificates are specifically excluded from the definition of a capital asset under the Income Tax Act, any appreciation in gold’s value during your deposit tenure is not subject to capital gains tax either. This combination of tax-free interest and tax-free appreciation is a meaningful advantage compared to simply holding physical gold, where any eventual sale could attract capital gains tax.
Why Do So Few People Actually Use This Scheme?
Given the tax benefits, it might seem surprising that adoption has been this low. A few consistent reasons explain the gap:
Emotional attachment to jewellery. Indian gold jewellery often carries generational and sentimental significance, and the requirement to melt it down for purity testing is a genuine deterrent for families holding heirloom pieces. Once melted, the original design and craftsmanship are permanently lost, something no interest rate can compensate for.
Modest returns relative to expectations. An interest rate in the range of 0.5 to 0.7 percent looks unappealing next to the price appreciation gold has delivered over the past decade, even though these are fundamentally different things, interest income versus market price movement.
Tax and compliance concerns. Many households hold inherited or older gold without formal purchase documentation. Depositing this gold, even though the scheme itself does not require proof of purchase for reasonable quantities, can still trigger anxiety about drawing unwanted attention to undocumented family gold.
Is It Worth Depositing Your Gold?
This depends heavily on what kind of gold you are considering. Gold bars, coins, or plain jewellery you have no sentimental attachment to and are not planning to wear again could genuinely benefit from earning tax-free interest instead of sitting idle. Heirloom jewellery with real emotional or design value is a different calculation entirely, since melting it is permanent and the modest interest on offer is unlikely to feel like fair compensation for that loss.
If you are trying to decide, it may help to separate your gold holdings mentally into two categories: gold you actively wear or intend to pass down as-is, which the scheme is probably not suited for, and gold that has simply been accumulating without any specific purpose, which is a more natural candidate.
If you are also curious about how much gold your family can hold at home without needing to justify it, we have covered that separately here: How much gold can you legally keep at home?
How Do You Get Started, If You Want To?
If you decide to go ahead, start by checking which banks in your area participate in the scheme and what specific Short-Term Bank Deposit rate they are currently offering, since this varies by bank. Visit an authorised Collection and Purity Testing Centre or the bank directly to get your gold tested and valued before committing, so you know exactly what you are working with before the melting process begins.
Frequently Asked Questions
What is the current interest rate under the Gold Monetisation Scheme?
For new deposits, only the Short-Term Bank Deposit option is available, with rates set individually by each participating bank, typically in the range of roughly 0.5 to 0.7 percent. The earlier 2.25 percent and 2.50 percent rates applied only to the Medium-Term and Long-Term Government Deposit options, which were discontinued for new deposits from March 26, 2025.
Is interest earned under the Gold Monetisation Scheme taxable?
No. Interest earned under the scheme is exempt from income tax under Section 10(15)(vi) of the Income Tax Act.
Do I have to pay capital gains tax if gold prices rise during my deposit tenure?
No. Gold Monetisation Scheme deposit certificates are excluded from the definition of a capital asset, so any appreciation in gold’s value during your deposit period is not subject to capital gains tax.
Does my gold jewellery get melted if I deposit it under this scheme?
Yes. Jewellery deposited under the scheme is tested for purity and melted down into standard form as part of the process. This is permanent and is one of the main reasons families hesitate to deposit sentimental or heirloom jewellery.
What is the minimum amount of gold I can deposit?
The minimum deposit is generally 10 grams of raw gold, whether in the form of bars, coins, or jewellery, excluding any attached stones or other metals.
Why has the Gold Monetisation Scheme seen such low adoption in India?
Despite genuine tax benefits, adoption has remained low mainly due to emotional attachment to jewellery and the permanent loss involved in melting it, modest interest rates compared to gold’s price appreciation, and concerns among some depositors about drawing scrutiny to gold without formal purchase documentation.
