In the budget speech finance minister, Mr Arun Jaitley said that a very important dimension to our tax administration is the fight against the scourge of black money. Hence it was also mentioned that a Bill for a comprehensive new law to deal with black money would be introduced in the current session of the parliament and key features of the new law on black money were also articulated.

The union budget 2015-16 also made Permanent Account Number (PAN) mandatory for any purchase or sale exceeding the value of Rupees 1 lakh. Thus now if you are out to buy gold (be it bars, coins and / or jewellery) exceeding a value of Rs 1 lakh, quoting PAN will be mandatory for you.

The impact of the move…
This proposal has not gone down well with jewellers as they have threatened to go on strike. According to them about 80% of the U.S. $122 billion dollar industry comes from rural customers and therefore they fear massive losses. It is vital to note that while rural India invests predominantly in physical gold and land, most rural households and farmers do not possess PAN cards. So in such a scenario, how is the Government going to keep a track while it proposes to track black money. And will this new ruling by the finance ministry really affect the lure for gold by the Indian population? Even a panel of the Reserve Bank of India (RBI) said in 2013 that even the previous rule of furnishing a PAN number for transactions above Rs 500,000 was not fool-proof and many jewellery shops flout that norm with impunity.

We at PersonalFN are of the view that it is unlikely the move will affect India’s gold demand as the precious yellow metal is looked upon with deep rooted Indian customs and values. Those who show penchant for gold for whatever financial and emotional reasons would find means to purchase gold unofficially, which will further give flight to black money. This will be antithetical to the intentions of the Modi government to curb black money. The official demand for physical gold may fall, and unofficial demand may rise. Asking customers to show a Government-issued identity card and fill out a form would contradict Mr Modi’s stated intention of making it easier to do business in India, according to those from the jewellery industry.

While the Government proposed Gold Monetization Scheme, the number of takers it finds remains to be seen. In the long run however, the quoting PAN for purchases and sale over Rs 1 lakh would enhance transparency in a system fraught with obscurity and encourage many people to engage officially in economic activities with PAN details.

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