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Sovereign Gold Bond - Taxation on SGB

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Sakshi Shah

income from trading
Income Tax
SGB

What is SGB – Sovereign Gold Bond?

SGB i.e. Sovereign Gold Bond are bonds issued by the government of India under the Sovereign Gold Bond (SGB) Scheme. SGB is government security denominated in grams of gold and is thus an alternative to holding physical gold. Investors such as Individuals, HUF, trust, university, and charitable institutions can invest in SGB. RBI i.e. Reserve Bank of India issues such bonds to the 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. These bonds are issued for a tenure of 8 years. Premature withdrawal 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

Income from Capital Gains would arise on the redemption of SGB or sale of SGB on the stock exchange. Both redemption and sale are covered under the definition of transfer of a capital asset. While Redemption of SGB means its expiry on the date of maturity, Transfer of SGB is its sale on a recognised stock exchange.

IFOS Income from SGB

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

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

Income 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).

Section 193 for TDS on Interest on Securities specifically mentions that no tax should be deducted on interest paid on government security. Thus, TDS is not applicable for payment of interest on SGB.

Tax Treatment on Sale or Redemption

Individual Investor

Other Investors

The redemption or transfer of SG Bond in case of investors other than individuals is taxed as LTCG at the rate of 20% with indexation benefit or STCG at slab rates if held for up to 12 months.

Applicable ITR Form in case of SGB

FY 2019-20: Due Date to file Income Tax Return for both audit and non-audit cases has been extended to 30th November 2020
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FY 2019-20: Due Date to file Income Tax Return for both audit and non-audit cases has been extended to 30th November 2020

FAQs

What is the benefit of investing into SGB (Sovereign Gold Bond) over physical gold?

SGB is a government security that investors holds in demat form thus eliminating the risk and cost of holding physical gold. The investor need not worry about the purity of gold and need not pay making charges if they invest into SGB. The investment in SGB is safer than physical gold since SGB is a government security, pays periodical interest and assures market value of asset on maturity.

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

Tax treatment of SGB bought from the secondary market and redeemed (held until maturity) is as follows:
– 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 amount of initial investment. Additionally, the interest will be credited semi-annually to the bank account of the investor 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 at the time of buying the bond.

Got Questions? Ask Away!

  1. Hey @Kunal_Sharma,

    If the Sovereign gold bonds are held till maturity, the redemption is exempt from capital gains only for individuals.
    And the interest earned will be taxable under the head Income from other sources.

    Capital Gains comes into the picture only if you sell it in the secondary market.

  2. Hi,

    Are there any deductions I can claim for investing in Sovereign Gold Bonds?

  3. Hi @Joe_Fernandes,

    Sovereign Gold Bonds are not eligible for deductions under Chapter VIA. However, if held till maturity they are exempt from capital gains for individual investors.

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