Be clear about the income sources before depositing gold over 500grams under the gold monetization scheme (GMS), as the government will levy income tax on such deposits on failing to name the sources.

The idea behind the move is to make sure that the scheme does not get exploited to convert black money to white.

"This is not a black money immunity scheme and normal taxation laws will be applicable," Finance Minister Arun Jaitley said.

Aiming to reduce the gold imports by the country, the government last week approved Gold Bond Scheme (GBS) and the GMS, and said that there would be "no relaxation in know-your-customer (KYC) guidelines or the reporting requirements of banks."

"Depositors may be informed by the banks that as per CBDT (Central Board of Direct Taxes) the course of IT search u/s 132, gold jewellery to the extent of 500 grams per married lady, 250 grams per unmarried lady and 100 grams per male member of the family need not be seized by tax authorities, but the tax penalties, as applicable, will be levied," Livemint reported, citing a government internal note dated 15 September.

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 shows gold held by households in the country currently stands at over 20,000 tonnes.

"This is a very good move. It will be wrong to give any kind of special dispensation to any asset class. This provides clarity to small retail depositors that they will not be subject to income-tax scrutiny and at the same time, ensures that the scheme is not misused. Why should retail depositors be subject to scrutiny under this scheme when they are not asked any questions when they use their gold holdings as a collateral to get a loan," said Somasundaram PR, managing director, India, World Gold Council.

According to the guidelines, banks are not permitted to use gold deposits to meet their statutory liquidity ratio and cash reserve ratio requirements. In the earlier draft, banks were allowed to do so.

India imports about 800 to 1,000 tonnes of gold annually and is the world's second largest consumer of the yellow metal. The two schemes are expected to help in curtailing country's metal imports.