Almost every Indian family has gold lying idle: a few bangles in a locker, coins from a wedding, an old chain nobody wears. The gold monetisation scheme, or GMS, was the government’s attempt to turn that idle metal into something that earns interest. You hand gold to a bank, the bank tests it, and you get a deposit that pays interest and returns your gold or its rupee value later.
The scheme has changed. In March 2025 the long-term and medium-term parts were shut to new deposits, and only the short-term bank deposit remains, offered by banks at their own discretion. If you are thinking of parking gold this way, or you already hold an older certificate, this guide explains what the scheme is, how the testing and interest work, what is still available, how it is taxed and what to ask your bank before you hand over a single gram.
What the gold monetisation scheme is
The Reserve Bank of India issued the Gold Monetization Scheme, 2015 as a Master Direction. It lets resident Indians deposit raw gold, meaning bars, coins and jewellery excluding stones and other metals, with participating banks. Eligible depositors include individuals, HUFs, firms, trusts, companies and charitable institutions. Joint deposits are allowed.
Participating banks are scheduled commercial banks other than regional rural banks. For you, the point is simple: gold in a locker earns nothing, while gold under this scheme can earn interest.
The three deposit types and what is left
The scheme originally offered three kinds of deposit. Their status today is the first thing to check, because older articles still describe all three as available.
| Deposit | Tenor | Interest | Status |
|---|---|---|---|
| Short Term Bank Deposit (STBD) | 1 to 3 years, with rollover | Set by the bank | Continues, at each bank’s discretion |
| Medium Term Government Deposit | 5 to 7 years | 2.25% a year as notified | No new deposits or renewals from 26 March 2025 |
| Long Term Government Deposit | 12 to 15 years | 2.50% a year as notified | No new deposits or renewals from 26 March 2025 |
Existing medium and long-term deposits are not cancelled. The RBI says they continue to maturity under the earlier rules. Gold deposited on or before 25 March 2025, with a receipt issued by that date, could still be used to open such a deposit. Anyone applying now should assume that only the short-term deposit is on the table.
How a gold deposit is tested and credited
This is the part that surprises people, because the bank does not simply weigh your jewellery. Gold is collected at a Collection and Purity Testing Centre or an agent authorised for the scheme. Designated bank branches may also accept it if the bank allows.
- An XRF test, a non-destructive scan, is run in your presence.
- You can take your gold back, or agree to a fire assay, which means the jewellery is melted to find its true purity.
- If you accept the assay result, the bank pays the centre’s fee. The refiner and the collection agent cannot charge you.
- You receive a receipt showing the weight converted to 995 fineness, which is the standard for the scheme.
The bank credits the 995-fineness gold to the deposit after the testing and issues the final deposit certificate either on the same day or 30 days after you hand over the gold. Because the jewellery is melted, you cannot get the same ornament back. If your 22-carat necklace carries sentimental value, this scheme is the wrong place for it.
What you actually get back
As an illustration, say you deposit 100 grams of 22-carat jewellery. Twenty-two carat is 91.6% pure, so the assay credits roughly 92 grams of 995-fineness gold, not 100 grams. Stones and making charges disappear because only the gold content is counted. Here the lesson is that the deposit measures purity, not the price you paid at the jeweller.
For a short-term deposit, the bank takes your choice of repayment in rupees or in gold in writing when you make the deposit, and that choice is irrevocable. Interest is always paid in rupees, calculated on the rupee value of the gold at the time you deposited it. Gold prices that rise or fall during the term therefore change what your principal is worth, but not the interest in rupees.
Interest on a short-term deposit
Banks fix the STBD rate themselves, and the RBI does not prescribe one. Interest starts on the date the gold is converted into tradable bars, or 30 days after the testing centre receives it, whichever is earlier. As a rough illustration, assume a bank offers 1% a year on a deposit whose rupee value at the time is ₹6 lakh. The interest would be ₹6,000 a year. Compare that with a fixed deposit rate before you decide, because gold in a locker also stays safe and keeps its identity. Our FD calculator shows what the same ₹6 lakh would earn.
Early withdrawal, loans and the rules for old deposits
For a short-term deposit, the bank decides whether premature withdrawal is allowed, along with any lock-in period and penalty. Read this clause in writing. A deposit you cannot touch for a year may not suit a family that expects a wedding.
For older medium and long-term deposits, the Master Direction is stricter. The lock-in is three years on a medium-term deposit and five years on a long-term one. Early closure before the lock-in is allowed only when the depositor dies or when a loan taken against the certificate goes into default. Redemption of those deposits before maturity is in rupees only. You can also take a rupee loan against a gold deposit certificate, which helps if you need cash but do not want to break the deposit.
Tax on interest and gains
The rules here come from the Income-tax Act, 2025, which applies from 1 April 2026. We did not read an official government copy of the final text. As we read the text of the Income-tax Bill, 2025 as passed by Lok Sabha (which became the Act), interest on deposit certificates issued under the Gold Monetisation Scheme, 2015, notified by the Central Government, is listed among exempt incomes. Those certificates are also left out of the definition of a capital asset, again as notified, so redeeming them does not create a capital gain.
Two cautions follow. First, both exemptions apply to certificates that the Central Government has notified, so you should ask your bank in writing how it treats your particular deposit, especially a short-term one. Second, the RBI Master Direction itself says only that tax follows whatever the Centre notifies from time to time. If you choose to take your principal back in gold, selling that gold later is a normal sale of gold, and our guide on tax on gold covers it. Use the income tax calculator to see where interest from any other deposit lands in your slab.
If you hold an older certificate: what happens at maturity
Holders of medium and long-term deposits should expect a letter. The Master Direction requires the bank to notify the depositor at least 120 days before redemption, and the depositor then has 30 days to say whether rupees or gold is wanted. You will need the original deposit certificate, so keep it somewhere safe and tell your family where it is.
If you choose gold, it is paid in multiples of 10 grams, and the leftover fraction is paid in rupees at the prevailing rate. Gold redemption carries an administrative charge of 0.5% of the notional rupee amount at maturity, or 0.2% for deposits made before 4 August 2022. The gold is held for up to 60 days after maturity, after which the redemption converts automatically to rupees in your linked account. No interest accrues on an overdue amount, so do not let the response window lapse.
What the bank does with your gold
The short-term deposit attracts the usual cash reserve and statutory liquidity requirements for the bank. Gold mobilised under it may be lent to jewellers as a gold metal loan, and banks may borrow it from one another. None of this changes your rights as a depositor. Since the short-term deposit is offered at each bank’s discretion, availability can differ from one bank to another.
Questions to ask a bank before you deposit
- Does the bank currently accept gold under the short-term deposit, and at which branches or collection centres?
- What is the interest rate, how often is it paid and is it credited to my account?
- What happens if I need the money early: is there a lock-in period and a penalty?
- Will I be repaid in rupees or in gold, given that the choice is fixed when I deposit?
- What is the testing fee if I decline the fire assay and take my gold back?
- How is the deposit taxed, and will you give me the answer in writing?
Is a gold deposit better than your other options?
Compared with a locker, a deposit earns something. Compared with a gold loan, which lets you borrow against the same jewellery without melting it, the deposit gives interest but costs you the ornament. Compared with exchange-traded funds or gold funds, a deposit is a physical-gold arrangement with limited choice of tenure and a rate that is usually modest.
For most households, the practical use is narrow. If you hold old coins, bars or broken jewellery you will never wear, and you can live without access to the gold for a year or more, a short-term deposit is worth asking about. If the gold is meant for a daughter’s wedding or an emergency, keeping it intact, or borrowing against it, is usually a better fit. Our guides on ways to invest in gold and on asset allocation help you decide how much gold belongs in your plan at all.
Key takeaways
- The gold monetisation scheme accepts at least 10 grams of raw gold with no upper limit.
- Medium and long-term deposits stopped on 26 March 2025, and only short-term deposits of 1 to 3 years remain, at each bank’s discretion.
- Jewellery is tested and melted, and your credit is counted in 995-fineness gold.
- Interest is paid in rupees; the principal returns in rupees or gold, as you choose at maturity.
- Interest and redemption of notified certificates are treated favourably by the Income-tax Act, 2025, but confirm for your own deposit.
- Read the lock-in and penalty terms in writing before you hand over your gold.
This is general information, not personal advice.
