Should I pay tax on Sovereign Gold Bonds (SGB)?
One of the best ways to invest in gold is investing through Sovereign Gold Bonds (SGBs). SGBs can be purchased through RBI directly or through secondary market from stock exchanges. These SGBs would get matured after completion of 7 years. Investors of these bonds can also do pre-mature withdrawal after 5 years. Investors would get regular interest from these gold bonds. One can get capital gains on selling these SGBs either in secondary market or on maturity. The taxation of SGBs is little tricky. In this article we would provide how sovereign gold bonds are taxed both from returns perspective as well as from capital gains perspective.
Also Read: Old Vs New Income Tax Regime – Check which is beneficial for you
Basics of Sovereign Gold Bond Scheme
Indians have been buying gold on all auspicious and festival occasions, even though there is no requirement of gold considering the price appreciation in the future. In view of this, Govt of India has been issuing Sovereign Gold Bonds where one can invest in gold in grams, get interest every 6 months and also get the equivalent amount of gold amount on maturity. This is as good as investing in physical gold, but through electronic form and get interest every 6 months in addition.
Taxation on Sovereign Gold Bonds
Here are the following things that would come into the picture for Sovereign Gold Bonds from a taxation perspective.
1) Taxation of interest received on Sovereign Gold Bonds
2) Taxation of capital gains on Sovereign Gold Bonds
i) Tax on capital gains on maturity
ii) Tax on capital gains arising at 5 years from the issue date
iii) Tax on capital gains arising from selling the gold bonds in the secondary market
Let us check these aspects in detail.
1) Taxation of interest received on Sovereign Gold Bonds
SGB’s offer interest rate of 2.5% per annum. This interest is paid every 6 months, i.e. 1.25% every 6 months.
This interest received from gold bonds is taxable in the hands of taxpayers.
This interest is taxable based on the income tax applicable to the bond holder. E.g. If the person is in the 30 % tax bracket, they need to pay 30% tax on such interest.
There is no TDS deducted on the interest paid. However, bond holders need to show this interest income, pay income tax and file income tax returns accordingly.
2) Taxation of capital gains on Sovereign Gold Bonds
Let us now check the tax aspect of capital gains on these gold bonds.
a) Capital gains on maturity
Sovereign gold bonds would be redeemed on maturity after completion of 8 years. Capital gains arising on maturity is tax free. Means irrespective of how much capital gains you might get on these gold bonds, you need not pay any income tax. This is special benefit provided by Govt of India for those who have shifted from physical gold to gold bond scheme.
b) Capital gains arising at 5 years from the issue date
Sovereign Gold Bonds provides an option for bond holder to redeem before maturity period, i.e. at 5 years from the date of subscription. Such bonds are redeemed with RBI directly. If you are redeeming at 5 years, the capital gains are taxable. Since the time frame is 5 years, such gains are treated as long term capital gains (> 3 years are LTCG). Such long term capital gains are taxed at 20% with indexation benefits.
b) Capital gains arising from selling the gold bonds in the secondary market
Sovereign Gold Bonds are listed on stock exchanges and these are assigned a unique ISIN number after 6 months from the date of issue. These can be sold on stock exchanges any time after the listing. If there are any capital gains arising from selling sovereign gold bonds on stock exchanges, such capital gains are taxable.
Also Read: 22 Unique Ways to save income tax in India
If the SGBs are sold within 3 years from the date of subscription, any gains arising are considered as Short Term Capital Gains (STCG). These STCG are added to the gold bond investor’s annual income and income tax is charged is paid as per their individual tax slab. E.g. if the investor is 30% tax bracket, they need to pay 30% tax on such short term capital gains.
If the SGBs are sold after 3 years from the date of subscription, any gains arising are considered as Long Term Capital Gains (LTCG). Such long term capital gains (LTCG) are taxed at 20% with indexation benefits.
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18 comments
Add a comment ↓People not having the DMAT account , this SGB can be purchased through any bank still the 50 RS discount is valid ? also the point to avoid the tax better to sell after 8 yeas no tax. Ok
Once the 8 years completed automatically the the BOND redeemed and amount will be credited to savings account ? the word sell to RBI means how to sell it after 8 years?
For all online transactions Rs 50 discount is applicable. Pls reach out to your bank if there is any disconnect. After 8 years, on redemption, RBI automatically redeem these bonds and payout would happen to your demat linked bank account. You don’t need to do anything on maturity.
How we can get or download the sovereign gold bond certificate when you purchased online.
Thanks
You can check this video which provides step by step process on how you can view your SGB Bonds online. https://www.youtube.com/watch?v=jE5fOAUkKMY
Sir,
Nice article thanks for writing, can you please clarify the capital gains for the bonds that i brought in secondary market but planning to hold till maturity (but the holding period is less than 8 years since i brought in secondary market).
Hello Satish, Your query is taxation about SGB purchased in secondary market and redemption on maturity with RBI. Here are our views.
Section 47 of the Income Tax Act indicates transactions not regarded as transfer: Any transfer of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, by way of redemption, by an assesee being an individual.
Notice the word “redemption”.
Mode of buying Sovereign Gold Bond does not matter. You could have bought the bonds in the primary issue or in the secondary market. It has no effect on taxation. What matters is the redemption.
In your case, you are redeeming with RBI directly, hence this is not regarded as transfer and no tax on capital gains.
Sir,
Thanks for the clarification, will this statement hold good even if my holding period is less than 3 years. What is the mode to get formal clarification from government on this matter, should i write an email to IT or some other department.
Appreciate your support.
Yes. But I doubt whether any one from IT dept would confirm through email, but you can mail to income tax department.
Very clear cut info. Thank you so much.
When is the next SGB issue …is ther any information regarding this from concern authority
RBI has not issued dates for upcoming SGB issue for FY2021-22. It should be anywhere by end of Apr-21 for this month SGB issue
Thankyou so much …..ur works are very useful and interesting too
This article provides very good clarity on investment in SGBs and it’s tax implications. I have a query –
I have SGBs in 2 series. Some times I observed their quote on stock exchange is in different directions – one goes up and another comes down. AS it is linked to price of Gold both should move in the same direction – this is what my presumption.
Thank you Subrahmanyam. Regd SGBs that trade on stock exchanges would go based on demand and not on gold prices. These are like any stock price. If there are high volume of sellers and few buyers, SGB gold prices on stock exchange would fall.
Very clear and detailed explaination on SBG. Good. Thanks.
Thank you Kamal ji
Yet another nice info. Thanks for bringing clarity Suresh garu. Happy Ugadi 🙂
Thank you Prashanth. Happy Ugadi to you too.