Taxation on Sovereign Gold Bonds (SGBs) in India

[Quicko]

Hello,

As per Income tax act, redemption of Sovereign Gold Bonds issued by the Reserve Bank of India by an assessee being an individual shall not be considered as transfer and hence, it is exempt for the purpose of capital gains tax.

Here, SGB can also be traded in secondary markets. If you buy SGBs from the secondary market and then redeem it on the maturity then it will be exempt from the capital gain tax. But, if you sell the bonds in secondary markets before the redemption period, then it will attract the capital gain tax.

However, opinion can be defer from tax experts as tax implications on withdrawal may be ambiguous.

[jpm]

@Quicko

If you buy SGBs from the secondary market and then redeem it on the maturity then it will be exempt from the capital gain tax.

Do you have to redeem manually, or will it automatically close upon maturity, with the proceeds transferred to your bank account? If so which bank account, i.e. when we buy through the secondary market - we may use 1 account for trading. Will it transfer to that?

I understand that the SGB price is determined by taking the 3 day average preceding the maturity date. Is that correct?

[Akash_Shah]

@jpm

Do you have to redeem manually, or will it automatically close upon maturity, with the proceeds transferred to your bank account? If so which bank account, i.e. when we buy through the secondary market - we may use 1 account for trading. Will it transfer to that?

after 8 years, redemption should happen automatically. Proceeds will be transferred to bank account linked with your demat account where you are holding SGB
Early redemption (on 5th, 6th, 7th year), needs to be done manually.

@jpm

I understand that the SGB price is determined by taking the 3 day average preceding the maturity date. Is that correct?

Yes, 3 day average price as quoted by Indian Bullion Jewelry Association

[Quicko]

Hello,

As per RBI Guidelines, both interest and redemption proceeds will be credited to the bank account furnished by the customer at the time of buying the bond on the maturity or redemption of SGBs. Early redemption before 8 years of maturity may be done manually.

For pricing, the nominal value of Gold Bonds shall be in Indian Rupees fixed on the basis of simple average of closing price of gold of 999 purity, published by the India Bullion and Jewelers Association Limited, for the last 3 business days of the week preceding the subscription period.

I hope, it helps!

[Prayag]

@jpm

I understand that the SGB price is determined by taking the 3 day average preceding the maturity date. Is that correct?

For older SGB series (until Sovereign Gold Bonds 2017-18 – Series II), the simple average closing price for the previous week is considered for arriving at the redemption price (also refer GOI Notification F.No. 4(19)-W&M/2014 dated January 14, 2016) -

On maturity, the Gold Bonds shall be redeemed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of 999 purity of previous week (Monday to Friday) published by the India Bullion and Jewelers’ Association Limited.

Also, recent press releases (2020-2021/1302 and 2020-2021/1060) by RBI regarding early/premature redemption of older SGB series mention about this -

In terms of Government of India Notification F.No.4(19)-W&M/2014 dated March 04, 2016 and RBI circular IDMD.CDD.No.2020/14.04.050/2015-16 dated March 04, 2016, the redemption price of Sovereign Gold Bond (SGB) is based on the simple average closing gold price of 999 purity [published by the India Bullion and Jewellers Association Ltd (IBJA)] of the week (Monday-Friday) preceding the date of redemption.

[neha1101]

Gold ETFs Vs Sovereign Gold Bonds | Personal Finance Plan

A good write up on SGB

[jpm]

Thanks.

I’m doing some research on Sovereign Gold Bonds – there is a tax question that no one seems to be clear about. Can’t seem to see any clarity on this from RBI either.

If you buy the SGBs on the stock exchange (e.g. via Zerodha) - will there be no capital gains LTCG tax if…

1. held to maturity, and
2. sold on the exchange itself.

[AJ007]

1. No capital gains
2. Yes capital gains

[Quicko]

Hello,

You can refer below answer for SGB tax implications:

@Quicko

As per Income tax act, redemption of Sovereign Gold Bonds issued by the Reserve Bank of India by an assessee being an individual shall not be considered as transfer and hence, it is exempt for the purpose of capital gains tax.

Here, SGB can also be traded in secondary markets. If you buy SGBs from the secondary market and then redeem it on the maturity then it will be exempt from the capital gain tax. But, if you sell the bonds in secondary markets before the redemption period, then it will attract the capital gain tax.

However, opinion can be defer from tax experts as tax implications on withdrawal may be ambiguous.

Further you can read below article for more insights about SGBs:

Income Tax on Gold in India - Learn by Quicko

I hope, it helps!

[rupeshmandal]

@Akash_Shah

Early redemption (on 5th, 6th, 7th year), needs to be done manually.

on interest credit dates only.

[Stonecold]

@Quicko
If someone is under 2.5lakh bracket, then also he has to pay tax under LTCG ?

[Quicko]

Hi @Stonecold, if the individual is an Indian resident then he isn’t liable to pay on LTCG if total income is less than 2.5 lakhs.

[Vinoth_Kannan]

Hi i have same query @Quicko

[Quicko]

Hi @Vinoth_Kannan,

SGB can also be traded in secondary markets. If you buy SGBs from the secondary market and then redeem it on maturity then it will be exempt from the capital gain tax. But, if you sell the bonds in secondary markets before the redemption period, then it will attract the capital gain tax.

Hope this helps!