NEW DELHI: The finance ministry issued a draft gold monetisation scheme on Tuesday aimed at unlocking the value of the yellow metal held by Indians. It seeks to encourage participation by holding out the prospect of tax-free earnings, with deposits starting as low as 30 gm.The ministry is looking at household and institutional holdings of gold that can be used to help the country cut its dependence on imports of the metal that are a frequent source of worry. Apart from individuals, organisations such as temple trusts, jewellers and banks could also benefit from the scheme.The government is likely to exempt the scheme from wealth tax, capital gains tax and income tax. It will be finalised after public responses to the programme are received.The country’s household gold holdings are estimated at 20,000 tonnes and the scheme aims to bring this into circulation, lowering the dependence on imports of 800-1,000 tonnes every year.The scheme is in line with Finance Minister Arun Jaitley’s promise in his February Budget speech. “The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewellers to obtain loans in their metal account,” he had said.According to the draft, deposits can be made in any form — bullion or jewellery. The customer will have to get the jewellery tested at one of 350 hallmarking centres certified by the Bureau of Indian Standards (BIS) to check the approximate amount of pure gold present. If the customer agrees with the assessment, he will be required to fill up a bank or ‘know your customer’ form, consenting to the gold being melted. This could take about 45 minutes. The jewellery will then be processed and pure gold extracted through a process that can take up to three-four hours.The person can still take back the gold in the form of bars if he doesn’t want to participate. Those who choose to stay in the scheme will be given a certificate that can then be used to open a gold deposit with a bank. The rate of interest on such deposits will be decided by the bank."Rate of interest offered in the scheme should be attractive enough," said Ashish Shanker, director, investment advisory, Motilal Oswal Private Wealth Management. "The scheme also has to be convenient in terms of the process."The draft provided some details of how the deposits are expected to work. "Both principal and interest to be paid to the depositors of gold, will be ‘valued’ in gold. For example, if a customer deposits 100 gm of gold and gets 1% interest, then, on maturity he has a credit of 101 gm," according to the draft scheme.Customers can opt for cash or gold on redemption, but the preference has to be stated at the time of deposit. The minimum tenure will be one year. "In the Gold Deposit Scheme (1999), customers received exemption from capital gains tax, wealth tax and income tax. Similar tax exemptions are likely to be made available to the customers in the GMS (gold monetisation scheme) after due examination," the draft said.This means a depositor can not only preserve his gold but also see it grow over the years. Banks may be permitted to deposit the mobilised gold as part of their cash reserve ratio or statutory liquidity ratio requirements with the Reserve Bank of India to incentivise them.This aspect, however, is still under examination, the draft said.Banks may also sell the gold to generate foreign currency, which can then be used for onward lending to exporters or importers.They could even convert mobilised gold into coins for onward sale to their customers and for lending to jewellers, it said.India is one of the largest consumers of the yellow metal in the world. Gold imports were up 22% in FY15 to $34.3 billion as the government eased quantitative restrictions imposed in the wake of the currency crisis of late 2013. These restrictions had been imposed after large gold imports led to the widening of the current account deficit that threatened the stability of the Indian currency.