The Reserve Bank of India (RBI) on Friday enabled the banks to decide interest rates on gold deposits on their own under the Gold Monetisation Scheme.
On 5 November, Prime Minister Narendra Modi will formally launch the scheme, under which the government plans to mop up gold worth nearly Rs 60 lakh crore from households and institutions in the country.
According to the RBI guidelines, banks are "free to set interest rate on such deposit, and principal and interest of the deposit will be denominated in gold."
"The interest will be credited in the deposit accounts on the respective due dates and will be withdrawable periodically or at maturity as per the terms of the deposit," PTI reported citing RBI guildlines.
The customers can prematurely withdraw from the scheme upon completion of a minimum lock-in period and paying penalty to be fixed by banks, RBI said.
Under the gold monetisation scheme, which was approved by the government last month, the minimum quantity of gold to be deposited should be 30 grams and there is no upper limit for deposits.
However, a media report in September said that the government would impose tax on gold deposites exceeding 500grams under the scheme if the depositors fail to name the sources.
Imposing tax on gold deposits exceeding 500 grams is also aimed at making clear the tax implications from taking part in the scheme. The estimates show gold held by households in the country currently stand at over 20,000 tonnes.
India imports about 800 to 1,000 tonnes of gold annually and is the world's second largest consumer of the yellow metal. The gold monetisation scheme is expected to help in curtailing country's metal imports.
Earlier in May, Japanese brokerage Nomura had said that the success of the Modi government's proposed gold monetisation scheme depends on paying higher interest rates to customers and waiving regulatory norms for banks.