AMA : Income Tax on Sovereign Gold Bonds (SGBs) in India

Sovereign Gold Bonds or SGBs are government securities denominated in grams of gold. SGBs are an alternative for holding physical gold.

Sovereign Gold Bonds are taxed under the head:

  1. Capital Gains: when redeemed on maturity or sold on the Stock Exchange
  2. Income from Other Sources: for interest earned on SGB

Gold Investment can also be done in the form of Physical Gold and Digital Gold and their tax treatment is the same as Sovereign Gold Bond.
The table below shows the tax treatment for all the three types of Gold Investment

Here’s a read to help you understand Income Tax treatment for Sovereign Gold Bonds.

Still got questions? Ask them below, and we’ll make sure to answer them in the simplest way

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?

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.

Hi,

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

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.

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:)

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:

Hi, I have some questions regarding capital gains tax on SGB for a very long time and it gets complicated every time I try to search.

RBI has mentioned this under their FAQ
“The capital gains tax arising on redemption of SGB to an individual has been exempted.”

  1. If investor decides to redeem their SGB during early maturity (5th year onwards) are we still exempted from capital gains tax or need to hold for full 8 years to get exemption from capital gains tax?

  2. How does one redeem their SGB 5th year onwards if buying during fresh series release via secondary market? Secondary market allows to sell as per the current price but is there any facility to opt for early redemption as RBI mentioned & not trading?

@Saad_C @Divya_Singhvi @Laxmi_Navlani @Kaushal_Soni @AkashJhaveri can you?

Hi,

I wanted to know the principle on which the 2.5% interest is applied.

a) interest is applied on the initial investment. E.g. bonds is issued at 3,000 per unit, interest is applied on 3,000 for the 8 year life of the bond ?

b) interest is applied based on the average LTP of gold when the interest is to be paid. E.g. bond issues at 3,000 per unit, gold price increases to 4,000 per unit. 2.5% is calculated on 4,000 as that is the average current price ?

Please do let me know which of the two scenarios is correct.

Thank 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.

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

Hope it helps!

I’ve gifted money to my wife (housewife) and she purchased SGB with it. How is tax applicable and on whom:

  1. On the interest amount.
  2. On maturity?

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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Thanks! But SGB is Tax free on maturity right? So there should not be any tax liability on maturity amount.

And final question. When my wife invest the maturity amount and make capital gain, is the tax on the gain amount my liability or my wife’s?

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.