Most Indians invest in gold in physical form. Over the years though, the government has been encouraging people to invest in the yellow metal in other forms. In 2015, it launched Sovereign Gold Bonds (SGBs).

In Union Budget 2023-24, announced this February, the government gave another push to encourage people to move over physical forms of gold by removing the incidence of capital gains tax on conversion of physical gold to electronic gold receipts (EGRs) and vice-versa. It is proposed that the holding period for capital gains would include the time the physical gold was held prior to its conversion. Also, the cost of buying EGR shall be deemed the cost of gold paid for earlier. Here’s demystifying EGRs.

Step-By-Step Process

1. Open a demat account with a trading member or depository with all the necessary documents—photograph, and proofs of identity, income, bank, and address

2. Deposit the gold bar or coin with a vault manager at a Sebi-approved delivery location. The manager will assess the gold quality and scrutinise the paperwork

3. The vault manager will create EGR in multiples of 1gm and record the information on an interface shared by depositories, stock exchanges, vault managers, and CCIL

4. The manager will assign an International Securities Identification Number (ISIN), provided by the National Securities Depository Ltd, to the EGR for trading on a stock exchange

5. CCIL will notify the stock exchange and depository of the change in EGR’s beneficial owner at the end of the trading day. The EGR is then listed on the exchange for trading

6. Likewise, you can convert EGR into physical gold by sending a request to the depository, which forwards the case to the vault manager, who, in turn, clears the gold delivery

What Are EGRs?

• EGRs are held in demat accounts and traded on the exchanges in the same way as stocks
• The government has approved the creation of a gold exchange to trade EGRs just like stocks are traded on the BSE and NSE
• According to Sebi rules, BSE began offering EGR on October 25, 2022, during the Muharat trading on Diwali

Things To Keep In Mind

• You can deposit gold jewellery, coins, and bullion, in multiples of 10gm and 100gm for conversion into EGR at Sebi-approved delivery locations
• You can convert old household gold into coins or bullion of appropriate quality for deposit
• Investors can purchase EGRs in two purity levels—995 and 999
• The holder can keep the receipts for as long as they desire, since EGR has perpetual validity   
• The underlying gold can be removed from the vaults and returned in physical form when the holder wants
• Gold deposited at one location and with one vault manager can be withdrawn from another area of the same or different vault manager if physical gold is available
• You can choose doorstep delivery of physical gold after its conversion from EGR, but with a delivery fee