I have a rather basic query on SGBs. How does the price of a recently listed SGB move if it cannot be sold for a period of 5 years since the date of issue? Consider the most recently listed SGB for instance.
Today’s (26th February 2024) trading volume is 2,494 shares. How do these transactions take place? And between whom?
It is tradable I. Secondary market
You are not encashing the bond. You are selling it to another person. He can encash it after 5 year period or hold it to maturity. Or sell it to someone else
As rightly pointed out by others, this statement is incorrect.
These are listed instrument and can be sold and bought in market.
They can be sold to others, they cannot be redeemed (“sold” back to the issuer, which is RBI) before 5 years.
Many thanks for enlightening me @ZeroIndian . Is the taxation the same if the bond is sold to another person or encashed with the RBI?
Many thanks for enlightening me @tallerballer. Is the taxation the same if the bond is sold to another person or encashed with the RBI?
I am not sure, but this thread could help you
I am not sure about this. Till some time ago this was a known grey area, with RBI/IT department not saying anything either way about it.
No premature selling was never a grey are from taxation point of view. That part is pretty clear and documented in RBI FAQ too.
Grey area is if you buy from market and then hold it till maturity (so total holding less than 8 years), will it be tax exempt at maturity or not.
Current assumption is yes, it will be tax fee, but it is a grey area.
This is what I see in the RBI FAQ:
28. What are the tax implications on i) interest and ii) capital gain?
Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long terms capital gains arising to any person on transfer of bond.
This point doesn’t differentiate between bonds that are bought from RBI, vs those that are bought in the secondary marked. The same FAQ does talk about trading the bonds; see point 34. So it is not like they didn’t take that part into account in this FAQ.
yes and that is a grey area as I previously said.
Original query was about selling and not buying
There is no grey area for this. As FAQ clearly says, redemption with RBI is exempted. If you transfer the bond (sell to someone else) then you get indexation benefit. So basically you pay capital gains with indexation
I guess our notions of “grey area” differ in this matter.
When I see
The capital gains tax arising on redemption of SGB to an individual has been exempted.
I read it as:
… has been exempted, and no other considerations apply.
, especially since the same FAQ does mention these other considerations (the trading of said bonds in the secondary market) elsewhere.
Whereas—I believe—you interpret it as:
Since the FAQ has not precisely laid out the two cases, it is safest to consider this as unsettled.
I can see the merit in both views. Let us hope they settle it in the direction which is better for the retailer.
Umm, yes that is precisely the meaning of grey area, where people are unable to form consensus 
To be clear, it is not my opinion that there will be no exemption on buying from secondary. In fact I am assuming that capital gains will be fully exempt on redemption regardless of how it was bought (that is how I will file my return)
But then this topic is being discussed on this forum as well as outside for years and lot of people (including experts) have suggested contradictory views.
Some examples
