Can Electronic Gold Receipts overcome GST and liquidity hurdles to unlock India's gold market?

Electronic gold receipts (EGRs) could improve transparency, liquidity and price discovery in India's gold market by allowing physical gold to be represented and traded electronically. However, taxation issues, low trading volumes and challenges in converting receipts into physical gold continue to limit wider adoption, according to insights from an expert session hosted by Motilal Oswal Financial Services.

The session highlighted the need to address structural barriers to help EGRs connect India's physical gold market with the organised financial system. The product allows investors to hold gold electronically while retaining ownership of the underlying metal, but it has struggled to gain traction despite strong investor interest in gold.

Separately, Ponmudi R, Founder and CEO of Enrich Money, told Business Today: “The problem with EGRs is not gold — it is the product structure and ecosystem around it."

He said investors already have simpler alternatives, with coins and jewellery catering to those seeking physical ownership and gold exchange-traded funds (ETFs) offering established avenues for financial exposure.

“EGRs sit somewhere between these two. While they offer direct ownership of underlying physical gold in electronic form, the investor experience is still not as seamless as competing products,” Ponmudi said.

Low liquidity remains a key hurdle

Trading volumes in EGRs remain limited, affecting liquidity and making it harder for investors to exit positions efficiently.

“Low trading volumes create wider bid-ask spreads, and once investors are uncertain about getting an efficient exit, participation falls further,” Ponmudi said, describing a cycle in which low participation discourages liquidity, which in turn deters new investors.

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EGRs could improve price discovery and transparency, but deeper participation from bullion dealers, refiners, jewellers, institutional investors and market makers would be needed to strengthen trading activity.

GST and conversion costs undermine convenience

Taxation and physical delivery are other significant barriers. According to Ponmudi, buying EGRs through an exchange does not itself attract the 3% GST applicable to a direct physical-gold purchase. However, redeeming EGRs for physical gold attracts 3% GST, along with withdrawal and delivery-related costs.

“That reduces one of the biggest attractions of the product — easy movement between financial and physical gold,” he said.

Investors must also consider conversion procedures, assaying, vault availability, withdrawal charges and delivery logistics. These requirements can make EGRs less convenient than competing investment options.

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Wider ecosystem needed to drive adoption

Ponmudi said regulators and policymakers should examine whether taxation could be made more efficient when gold moves between electronic and physical forms without representing a fresh economic purchase.

He also called for a wider vault and delivery network across major cities, alongside simpler integration of EGRs into brokerage applications.

“Our view: EGR is fundamentally a good concept because it can connect India's physical gold market with the financial market in a transparent, regulated structure,” he said.

For EGRs to gain wider acceptance, Ponmudi said, buying must be easy, selling must be liquid and conversion into physical gold must be economical.

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