Many people believe that investing in Sovereign Gold Bonds (SGB) always gives tax-free returns on maturity. But this is not completely true anymore. The government is changing the rules related to tax on SGB returns.
Union Finance Minister Nirmala Sitharaman announced this change in the Budget. Currently, no new SGB issues are being launched, but existing bonds are being traded in the stock market.
Many investors buy SGBs from the stock exchange and enjoy tax-free returns. However, this benefit will not continue for everyone.
The Finance Minister has clarified that not all investors will get tax exemption on capital gains from SGB.
Who Will Get Tax Exemption on SGB Returns?
According to the new announcement:
If an investor buys a Sovereign Gold Bond directly at the time of issue from the government and holds it until maturity, the returns will remain tax-free.
But if an investor buys SGB from the stock exchange (secondary market), the profit earned at maturity will be taxable.
In simple words, only those who buy SGB during the original government issue and hold it till maturity will get tax-free returns.
When Will the New Tax Rule Apply?
At present:
If you buy SGB from the stock exchange and hold it till maturity, you do not have to pay tax on the profit.
But from the next financial year:
From April 1, 2026 (FY 2027), if you buy SGB from the stock exchange, the profit earned at maturity will be taxable.
This means the current tax-free rule for secondary market SGB purchases will end from FY 2027.
Features and Returns of Sovereign Gold Bonds
Sovereign Gold Bonds are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. They allow investors to invest in 24-carat pure gold.
Key features of SGB:
The value of investment changes according to gold prices.
Investors get interest at the rate of 2.5% per year, paid in two installments.
The maturity period is 8 years.
If held till maturity (under original issue conditions), the profit is tax-free.
Early withdrawal is allowed only after 5 years, and in that case, profit may be taxed.
Since SGBs are listed on stock exchanges, they can be traded anytime through a demat account.
History and Performance of SGB Investment
The first SGB investment opportunity was launched in November 2015.
At that time:
Minimum investment: 2 grams of gold
Maximum investment: 500 grams of gold
Interest rate: 2.75% per annum (later reduced to 2.5% for new bonds)
Issue price: ₹2684 per gram
Issue date: 30 November 2015
After 8 years, on maturity:
Redemption price: ₹6132 per gram
Annual return (CAGR): 10.87% per year
This shows that Sovereign Gold Bonds have given excellent returns to investors.
