Many investors buy Sovereign Gold Bonds (SGBs) from the stock exchange at a premium, largely because they believe holding them till maturity makes their gains tax-free. This benefit made SGBs more attractive than physical gold.
Budget 2026 made a key announcement that the capital gains exemption on SGB redemption now applies to original subscribers, not to investors who acquire the bond later.
If you’re new to SGBs, you may first read: What are SGBs and how are they taxed?
Quick Summary
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Capital gains exemption on SGB redemption continues, but only for original subscribers
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The bond must be subscribed at original issue, held continuously, and redeemed on maturity with the issuer
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If you bought SGBs from NSE/BSE, gains on redemption are taxable where redemption occurs in TY 2026-27 or later
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Interest on SGBs remains taxable every year
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The amendment is prospective, not retrospective
What changed in Budget 2026 for SGBs?
Budget 2026 clarified that capital gains exemption on Sovereign Gold Bonds is available only where all the following conditions are satisfied:
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The SGB is subscribed at the time of original issue
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It is held continuously by the same investor
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It is redeemed on maturity with the issuer
If any of these conditions is not met, the capital gains exemption does not apply.
Earlier, the law exempted capital gains arising from redemption of SGBs, but it did not clearly specify who must redeem the bond. This ambiguity became important once SGBs started trading on stock exchanges.
This change will be effective from 1 April 2026, applicable for Tax Year 2026-27 onwards. Also, redemptions completed up to 31 March 2026 will not be affected.
Is this a new tax or the removal of an exemption?
The exemption hasn’t been withdrawn. Budget 2026 simply clarifies that it’s meant only for the investors it was originally intended for.
Why was this clarification needed?
Let’s talk about how SGBs were taxed earlier. Before Budget 2026 capital gains on redemption of SGBs were tax-free, and the exemption applied based on the act of redemption, not who held the bond.
Once SGBs became tradable on exchanges, investors could buy them in the secondary market, hold them till maturity, and redeem them. This led to interpretations that went beyond what the original policy intended.
What was the original policy intent behind the exemption?
The capital gains exemption was meant to:
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Encourage investors to buy SGBs directly from the government
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Reduce dependence on physical gold imports
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Reward long-term holding by retail investors
Who gets the capital gains exemption after Budget 2026?
You can claim full capital gains exemption on SGB redemption only if all these conditions are met:
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You subscribed to the SGB during the original issue
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You held it continuously, without any change in beneficial ownership
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You redeem it on maturity directly with the issuer
To make this clearer, each condition is explained below:
What does ‘subscribed at the time of original issue’ mean?
It means applying for SGBs during the notified issue window, through banks, post offices, stock exchanges (during the issue period), or RBI-authorised platforms.
Buying SGBs later from NSE or BSE does not count as original subscription.
What does ‘held continuously’ mean?
It means that beneficial ownership of the bond should not change from allotment to redemption.
This condition is considered broken if the SGB is: sold/ gifted/ transferred through inheritance. Minor changes that don’t affect beneficial ownership, like updating demat accounts or nominee details, do not break continuity.
What is considered ‘redemption’ for this exemption?
For this exemption, redemption refers to:
- Repayment of the bond by the issuer on maturity
Also, selling the bond on the stock exchange is not considered redemption and is treated as a taxable transfer.
Who does not get the exemption?
While SGBs remain a great investment, the capital gains exemption applies only in specific cases.
What if I buy SGBs from NSE or BSE?
If you buy SGBs from the stock exchange:
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You are not considered an original subscriber
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Capital gains on redemption are taxable if redemption happens in TY 2026-27 or later
This is true even if you hold the bond till maturity; simply buying it from the secondary market does not make you eligible for the exemption.
What if SGBs are received by gift or inheritance?
In such cases, the capital gains exemption is unlikely to apply, because the rules now require continuous holding by the original subscriber.
While normal capital gains provisions allow continuity of cost and holding period, the SGB exemption is a special, condition-based benefit, so it does not automatically extend to recipients of gifts or inheritance.
What if I sell SGBs before maturity?
Selling SGBs before maturity is treated as a transfer, and any capital gains arising from it are taxable. This was the case even before Budget 2026 and continues to apply.
How are SGB gains taxed when exemption is not available?
Even where the capital gains exemption does not apply, SGBs continue to follow clear and defined rules.
How are taxable SGB gains treated?
The capital gains exemption does not apply when:
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Gains are taxed as capital gains
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They are classified as long-term or short-term based on the holding period
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Standard capital gains rules apply under the Income-tax Act
How is interest on SGBs taxed?
Interest earned on SGBs (currently 2.5% per annum) is always taxable, regardless of how the bond is acquired or redeemed. It is taxed under Income from Other Sources and added to your total income, and taxed at your applicable slab rate. This treatment has not changed, even after Budget 2026.
Can capital losses be set off against taxable SGB gains?
Yes, any taxable gains from SGBs follow the normal set-off and carry-forward rules under the Income-tax Act.
Should you buy SGBs from the stock exchange now?
Buying SGBs from the exchange can still make sense if your goal is exposure to gold prices. What changes is how you evaluate the returns.
Before buying, consider:
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The purchase discount or premium to the gold price
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Your expectations around gold price appreciation
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The capital gains tax payable on redemption
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Liquidity needs and your intended holding period
With the tax-free maturity benefit no longer available for secondary market purchases, SGBs bought from the exchange should be assessed alongside Gold ETFs and gold mutual funds, rather than being viewed as tax-free maturity investments.
Final Takeaways
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Budget 2026 does not remove the capital gains exemption on SGBs
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It clearly limits the benefit to original subscribers who hold the bond till maturity
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Secondary market buyers should now factor capital gains tax into their return calculations
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The taxation of interest income remains unchanged
With Sovereign Gold Bonds, how you enter matters as much as how long you hold.
Disclaimer: Tax treatment is based on the Budget 2026 amendment as proposed and may be further clarified through rules, notifications, or circulars.
FAQs
1. Is capital gains exemption on SGBs removed after Budget 2026?
No. The exemption continues, but it is available only to original subscribers who hold the bond continuously and redeem it at maturity.
2. Does holding an SGB till maturity automatically make the gains tax-free?
No. Holding till maturity by itself is not enough. The exemption also requires that you are the original subscriber.
3. Are SGBs bought from NSE or BSE tax-free on maturity?
No. Capital gains on SGBs purchased from the stock exchange are taxable if redemption takes place in Tax Year 2026-27 or later.
4. Does gifting or inheriting an SGB affect the tax exemption?
Yes. The exemption is unlikely to apply because the amended rules require continuous holding by the original subscriber.
5. Is selling an SGB before maturity taxable?
Yes. Selling an SGB before maturity is treated as a taxable transfer, and capital gains tax applies.