Are payments received on maturity and interest on SGB bought from the secondary market treated the same way as those from the primary issue?
Yep, the treatment is the same irrespective of where you buy. Here are some bits to note:
- You pay tax as per your slab on the 2.5% interest. The interest is on the issue price always, irrespective of what price you paid while buying in the secondary market.
- If you hold the SGBs for more than 5 years, LTCG is exempt. If you buy SGBs that will mature in lesser than 5 years from the secondary market, then this becomes inapplicable for you.
Thank you for your reply, @mohitmehra. Would you happen to know if selling in the market is treated the same as redeeming from RBI?
Yep, the sale on the secondary market is the same as redeeming with RBI for tax purposes. Also looping @Quicko in case they want to add something.
Nope, I doubt that is true. Capital gains is exempt only for redemption. On transfer (sale on secondary market) you will pay LTCG with indexation benefit. RBI FAQ is very clear on this
I am not sure where you got this 5 year clause from. Can you cite some reference?
As far as I knew, there wasn’t any holding period requirement for getting capital gains exemption.
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Hey @Augustine_Charly,
There can be two scenarios, one, where you hold the bonds till maturity (8 years) and redeem them. And second, you sell the bonds on the stock exchange before maturity. The tax implications would be different in both situations.
- If you hold the bonds till maturity, the capital gains will be completely tax-exempt. That means you do not have to pay any taxes on the capital gains from these bonds.
- If you sell them in secondary markets, the gains will be taxable as short-term (holding period < 12 months) and long-term capital gains based on the holding period (holding period >12 months). STCG will be taxed at slab rate and LTCG will be taxed at 20% with indexation benefit or 10% without indexation.
Hope this helps!
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Hey @Pugazh,
The taxation depends on how you are selling the SGBs.
If you sell them in the secondary market, they will be taxable. However, if you redeem them on maturity (8 years from the date on which the SGB was originally purchased), the capital gains will be tax-exempt.
Hope this helps!
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Great, Thanks!
Hi… can you clarify tax in case of following scenarios. In all scenarios below SGBs were bought in secondary market
-
bought sgb with residual maturity of less than 3 years and exercised the option of early redemption through RBI after holding it for 1 year
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bought sgb with residual maturity of less than 5 years and exercised the option of early redemption through RBI after holding it for 1 year
-
bought sgb with residual maturity of more than 3 years and held it till maturity
-
bought sgb with residual maturity of more than 5 years and held it till maturity
Capital gains from redemption of SGBs are exempt from taxation for individuals. See the screenshot that @Akash_Shah shared, above.
So, in all the five cases that you listed, the capital gains are exempt from tax, provided the bonds were bought by an individual.
From SGB FAQ
Interest on the Bonds will be taxable. 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.
Hi
i am planning to open HUF demat trading account with zerodha. i have individual a/c with zerodha
can we buy or sell stocks in pre open for HUF?
which faciltiy/features not available in HUF Account as compared to individual a/c??
What if you buy SGB from the secondary market and hold it till maturity in less than 2 years? Are we taxed? Does it differ if 2 years in the above question increases or decreases?
“The capital gains tax arising on redemption of SGB to an individual has been exempted”
https://www.rbi.org.in/commonperson/english/scripts/FAQs.aspx?Id=1658
A time frame is not mentioned, gains on redeeming with RBI are tax exempted. So you can interpret it as you like.
Thank you for your answer but it doesn’t matter how I interpret things. What matters is how the taxman is interpreting it.
One lot of my SGB I bought from secondary market a year and a half ago is going to mature in coming November. I wish I knew if I have to pay tax for that as of now. If I do incur tax I can do a few more things along with it starting today.
I have linked to RBI’s FAQs.
As per me, no. Am not a CA.
No, we are not taxed on the gains arising from redemption of SGBs. The reference is what @tallerballer quoted.
Kindly go through RBI FAQ and read S.No 28. Only original allotted who retain the bond till maturity of 8 years will be exempted from capital gain tax. All secondary holders has to pay tax as applicable after indexation.
