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Sovereign Gold Bond - Taxation on SGB

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Sakshi Shah

income from trading
Income Tax
SGB
Last updated on July 15th, 2021

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 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. 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 (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 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 at the rate of 10% without indexation benefit. STCG at slab rates if held for up to 12 months.

Applicable ITR Form in case of SGB

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.

Can I receive the bonds in the Demat form?

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.

Can I use these securities as collateral for loans?

Yes, these securities are eligible to be used as collateral for loans from banks, financial Institutions and NBFCs. But, it would be subject to decision by authority and can’t claim as matter right.

Got Questions? Ask Away!

  1. Hi,

    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?

  2. 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.

  3. Hi,

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

  4. 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.

  5. 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:

  6. 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.

    https://m.rbi.org.in/scripts/FAQView.aspx?Id=109

    Hope it helps!

  7. 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.

  8. Hey @amitava82 ,
    The tax liability would be NIL as SGB is tax free on maturity.

    Any income earned by Your wife from the invested maturity amount will be taxable in her individual capacity. Such income will not be clubbed and hence, the tax liability will have to be borne by your wife.

    Hope this helps.

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