Electronic Gold Receipts (EGRs) are finding it difficult to gain popularity in India due to high tax costs and thin trading volumes. Unlike popular Gold ETFs, EGRs face hurdles like GST on redemption and limited vault access, making them less attractive for investors seeking digital gold alternatives.
Indian investors seeking to hold gold electronically are increasingly avoiding Electronic Gold Receipts (EGRs). Despite being launched with the goal of bringing physical gold into the formal system, these instruments are struggling to compete with more established options like Gold ETFs. The product, which was designed to allow buying and selling of gold on stock exchanges, has not yet found a stable footing among retail or institutional investors.
The primary barrier to adoption is tax policy. When an investor decides to convert their digital EGRs into physical gold, they are required to pay a 3% Goods and Services Tax (GST). For retail investors who have already paid taxes on their original gold purchases, this additional tax acts as a penalty. For jewelers and institutional players, the situation is even more difficult because the current security classification prevents them from claiming input tax credit. This makes the product economically unviable for those trying to manage inventory or hedge their positions within the formal financial system.
Trading activity also remains very low. While Gold ETFs on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) see significant daily participation, EGR volumes are often thin, frequently falling below Rs 1 crore per day. This lack of active market makers creates a difficult environment for investors, as it leads to a wide gap between buy and sell prices. This makes it harder for investors to exit their positions or trade in larger quantities without affecting the price.
The physical side of the ecosystem is also limited. Gold vaults registered with regulators are mostly concentrated in major cities such as Mumbai, Delhi, Ahmedabad, and Chennai. For investors living outside these hubs, this creates a significant access problem. Furthermore, the conversion process from digital to physical gold requires mandatory testing to verify purity, which adds extra costs. For retail buyers, the loss of value from making charges and purity testing makes the trade mathematically unattractive compared to other investment avenues.
While officials at the exchanges have stated that the long-term intent remains to reduce India’s reliance on gold imports by recycling domestic stocks, the current format has not yet matched the ease or efficiency of competing products. Investors should watch for future policy updates, specifically regarding changes to the GST structure on redemption or the expansion of the vaulting network, as these will be essential to make EGRs a practical tool for gold investment.