It’s my understanding that SGB’s are tax-free if held from issuance till maturity of 8 years.
Let’s say I purchase 10 units in Sept and intend to hodl for 8 years. I receive the certificate from RBI and everything. Then, I purchase another 5 units of the same SGB series from the open market in Zerodha for trading, making the total SGBs delivered to CDSL as 15.
What happens when I sell 5 units?
I ask because in case of stocks typically Zerodha debits in a first-in first-out manner, so technically this would debit the oldest held SGB from CDSL. Does this kind of trading disturb the tax-free status of SGBs held to maturity?
Understood. and that’s what I’m curious about. In case of stocks, FIFO works to claim LTCG, but in case of SGBs where hold-to-maturity has tax-free rewards, LIFO seems advantageous but Zerodha probably doesn’t work that way. Looking to confirm.
Agree with you. Unfortunately, We have to comply with the rules stipulated by the income tax act which says FIFO method has to be followed for determining ‘date of transfer’ and ‘period of holding’
It is bit grey out here. I think law only says that capital gains is tax free if SGB is held till maturity.
It does not differentiate if SGB were bought in primary market or secondary market.
This should not be a concern because whatever you held till maturity will be tax free.
In your ex, you bought 10 in primary market and 5 from secondary (but that difference is immaterial).
So if you held all 15 till maturity, CG for all 15 will be tax free
if you sold 5 in between and held 10 till maturity, CG for 10 will be tax free.
Bottomline is anything you held till maturty, CG is tax free, regardless of how and when they were bought.
whoa. If that’s the case then you could purchase SGBs a month before maturity from the secondary market and walk away with tax free CG? that seems…odd. Not even STCG.
Theoretically you can, but you can very well end up in a loss in that scenario, Capital gains is not guaranteed
As I said, it is bit grey, and law does not state explicitly about holding period.
First of SGB series have just started maturing, so lot of tax related issues will only now be coming up. So probably govt will come up with clarification on it. But for now, if you hold till maturity, it is tax free.
I have curious question…is it regulatory grey area.
For equity and bonds, I buy in zerodha and hold for say three months and sell it.
When I buy in zerodha, I buy the same shares in let’s say abc broker. I will keep it in for year’s. So two broker’s there won’t be FIFO right. And it’s legal. While zerodha I use for short term and other broker for long term.
Also my friend tried to close his HDFC securities when I referred zerodha. Hdfc were not transferring LIC shares to zerodha. So he sold the shares that day in HDFC and brought in zerodha same day. He has short term capital gains losses.
Now it’s legal right to offset short term capital gains profit with lic loses.
SGBs come with a lock-in period of 5 years after which it can be redeemed early. If the SGBs are held till maturity the gains are tax exempt.
As correctly mentioned by @Meher_Smaran, for bonds held in demat form, FIFO rule is applicable meaning the bond purchased first will be considered sold first.
