What is SGB – Sovereign Gold Bond?
SGB i.e. Sovereign Gold Bond are bonds that the government of India issues 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. 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
Income from Capital Gains would arise on the redemption of SGB or sale of SGB on the stock exchange. The definition of transfer of a capital asset as per Section 2(47) of the Income Tax Act covers both redemption and sale of SGB. While the redemption of SGB means its expiry on the date of maturity (including pre-mature redemption), 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.
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 excludes deduction of tax on payment of interest on government security. Thus, TDS is not applicable for payment of interest on SGB.
Tax Treatment on Sale or Redemption
- Redemption of Sovereign Gold Bond – The definition of transfer of capital asset excludes redemption of SGB. Thus, the Capital Gain on Redemption of Sovereign Gold Bond by an Individual Investor is exempt from tax.
- Transfer of Sovereign Gold Bond – If the individual investor transfers the Sovereign Gold Bond by selling it on the stock exchange, it is taxable as LTCG if held for more than 12 months at the rate of 20% with indexation benefit or 10% without indexation. However, if the SGB is held for up to 12 months, it is taxed at the slab rates applicable to the taxpayer.
In the case of investor other than individuals, the LTCG tax is at 20% with indexation benefit or at 10% without indexation benefit on transfer or redemption of SGB.
Applicable ITR Form in case of SGB
- ITR Form: If you have invested into 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 Date – 31st July of the Assessment Year.
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.
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.
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.
The interest and redemption amount will be credited to the bank account furnished by the customer at the time of buying the bond.
Yes. The bonds can be held in the Demat account. A specific request for the same must be made in the application form itself. Till the process of dematerialization is completed, the bonds will be held in RBI’s books. The facility for conversion to Demat will also be available subsequent to the allotment of the bond.
So i have bought SGB from the secondary market, but i intend to hold it till maturity. So int will be taxed under other sources, but am I also liable for capital gains?
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.
Are there any deductions I can claim for investing in Sovereign Gold Bonds?
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.
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. )
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!
@Saad_C @Divya_Singhvi @Laxmi_Navlani @Kaushal_Soni @AkashJhaveri can you?
Hey @Saad_C, could you help us out here?
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!
Hey @amitava82 ,
Since you have gifted money to your wife and she has invested in SGB; clubbing provisions will apply. As per the said provisions, you would be required to pay tax on the income earned from the investment made by her. You may read about clubbing provisions here. Clubbing of Income : Definition and its Applicability - Learn by Quicko.
Taxability of SGB is as follows:
Tax is applicable on the interest amount every year and taxed under the head Income from Other Sources. Tax on this income will be paid by you.
On maturity, Capital Gains Tax will be levied. This tax will also be paid by you as you have gifted money to your wife.
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