Tax on Sovereign Gold Bond

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Sakshi Shah

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Income Tax
Last updated on February 19th, 2024

The Government introduced the Sovereign Gold Bond Scheme in November 2015. The primary aim of introducing this segment is to offer individuals an alternative method of investing in gold without the necessity of possessing the physical metal. Investors gain returns tied to the current market price of gold. Moreover, the RBI releases this scheme gradually over a period of time.

What is a Sovereign Gold Bond?

SGB i.e. Sovereign Gold Bond are bonds the government of India issues under the Sovereign Gold Bond (SGB) Scheme. SGB is government security denominated in grams of gold, thus it is an alternative to holding physical gold. Investors such as Individuals, HUF, trusts, universities, and charitable institutions can invest in SGB. RBI (Reserve Bank of India) issues such bonds to investors at an issue price with a fixed maturity.

The minimum investment is 1 gm and the maximum is 4 kg for Individuals and HUFs. It is 20 kg for trusts and other entities as per the government. The tenure for the issue of SGB bonds is 8 years. Premature redemption is only possible after the completion of 5 years of investment. Additionally, investors can sell the bonds in the secondary market at the existing market price of gold.

Income Head for Sovereign Gold Bond

Capital Gains on Sale of SGB

The definition of transfer of a capital asset as per Section 2(47) of the Income Tax Act covers both redemption and sale. Hence, whenever the taxpayer sells or redeems their SGB holding, the capital gains will arise and they have to pay taxes on the same. Here, the redemption of SGB means its expiry on the date of maturity (including pre-mature redemption), and the transfer of SGB means its sale on a recognized stock exchange. However, under the definition of transfer of capital asset, the redemption of SGB is specifically excluded.

IFOS Income from SGB

The RBI on behalf of the government pays periodical interest on SGB. The interest rate is 2.5% per annum on the initial investment amount. This interest is credited semi-annually and the last interest is payable to the investor on the maturity date along with the principal.

Interest on SGB is taxable under the head IFOS (Income from Other Sources). The taxpayer has to report the interest under Schedule OS in the Income Tax Return.

Tax on Sovereign Gold Bond

Tax Treatment on Interest

The Interest on SGB is taxable at slab rates under the head IFOS (Income from Other Sources). Further, Section 193 for TDS on Interest on Securities specifically excludes tax deductions on payment of interest on government security. Thus, TDS is not applicable for payment of interest on SGB.

Tax Treatment on Sale or Redemption

Individual Investor

Other Investors

In the case of investors other than individuals, the LTCG tax is at 20% with an indexation benefit or at 10% without an indexation benefit on the transfer or redemption of SGB.

Applicable ITR Form in case of SGB

ITR FormIf you have invested in SGB and earned Interest, you should file ITR-1 (ITR for IFOS Income). However, if you have redeemed or sold SGB, you should file ITR-2 (ITR for Capital Gains Income).
Due Date31st July of the Assessment Year.
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What is the benefit of investing in SGB (Sovereign Gold Bond) over physical gold?

SGB is a government security that investors hold in demat form thus eliminating the risk and cost of holding physical gold. The investment in SGB is safer than physical gold since SGB is government security, pays periodic interest, and assures the market value of the asset on maturity.

What would be the tax treatment if SGB is bought on the secondary market and held till maturity?

If the investor buys SGB from the secondary market and redeems it after holding it until maturity, here is the tax treatment:
– Exempt if you are an Individual Investor
– Taxable at slab rates if STCG and at 20% with indexation benefit if LTCG if you are any other investor.

What is the rate of interest and how is it payable?

The bonds bear interest at the rate of 2.5% p.a. on the initial investment amount. Additionally, the interest will be credited semi-annually to the investor’s bank account and the last interest will be payable on maturity along with the principal.

How will I receive the redemption amount?

The interest and redemption amount will be credited to the bank account furnished by the customer when buying the bond.

Can I receive the bonds in the Demat form?

Yes. The bonds can be held in the Demat account. A specific request must be made in the application form itself. Until dematerialization is completed, the bonds will be held in RBI’s books. The facility for conversion to Demat will also be available after the allotment of the bond.

Got Questions? Ask Away!

  1. Yes I have the same query.

    1. Lets say investor misses out to buy in primary market and buys it in secondary market once it is listed. What will be the taxation if held till maturity.

    2. Indexation benefit is still available for SGB for LTCG (sold before maturity)?
      It got removed from all debt products last year?

  2. Hey @Gowtham @Saurabh_Gupta1,

    If you buy SGBs from the secondary market and hold them till maturity, the capital gains will be exempt from taxes.

    Moreover, yes indexation benefit is available on SGB.

    Hope this helps!

  3. Hello @TeamQuicko,

    I have a few queries on SGB taxation.

    1. What is the capital gains tax structure (percentages and duration) for SGBs? The debt mutual fund taxation is now 30% irrespective of the holding duration. Does the same apply to SGBs as well?
    2. What is the capital gains tax structure (percentages and duration) for SGBs purchased from the secondary market? Let us say an investor purchases an SGB that has 4 years to go for maturity and holds it till maturity. What will be the tax liability in such a case? What if the same SGB has less than 3 years (say 1 year) to go for maturity?

    Vivek R Shenoy

  4. Hey @VRS1995,

    With regard to your queries,

    Hope this carifies!

  5. Why is Gov. (via RBI) issuing SGBs apart from the regular bonds?

    (I understand this isn’t tax related, but I’ll be glad if you guys can answer this. :slightly_smiling_face:)

  6. Hey @Augustine_Charly ,

    Normally, the SGBs are issued by RBI and guaranteed by government. This is the only form of gold that pays interest. Issuing SGBs not only bring down the demand of physical gold but also track import-export activities. There may be transparent and fair pricing of gold as it is now regulated by RBI.

    Unlike physical gold, SGBs are free from theft, risk and holding charges as it is fully backed by Indian government. Black money also plays important role to issue gold bond.

    Here you can read the below article for more understanding about SGBs:

    I hope, it helps! :slightly_smiling_face:

  7. Hey @Droid_Droid ,

    The interest on Sovereign Gold Bonds (SGBs) at 2.5% p.a is calculated on the initial amount of investment and paid semi annually.

    Out of the two scenarios that you presented, the first one is correct.

    You can refer the RBI FAQ’s on Sovereign Gold Bonds in the below link. Please refer point number 14 for your query.

    Hope it helps!

  8. Hey, transfer of SGB issued by RBI under Sovereign Gold Bond scheme 2015, by way of redemption by an individual shall be tax exempt.

  9. If I held SGB till matutity, How do I show capital gain in itr 2 as it is non taxable?

  10. Hi @Khyati_Gupta

    When you hold Sovereign Gold Bonds (SGB) till maturity, the capital gains you earn from their redemption are considered exempt from tax. You need to report this under exempt income in your ITR.

    On Quicko, here’s how you can report it as exempt income under the “Income from Other Sources” (IFOS) section.

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