The Reserve Bank of India (RBI) introduced the Sovereign Gold Bond (SGB) scheme in November 2015 to enable investors to invest in gold and enjoy the benefits of interest and capital appreciation without worrying about the safety, maintenance cost, making charges cost, etc. that are associated with owning physical gold.
Along with the above, you as an investor can also avail tax benefits and exemptions as per the Income Tax Act, 1961. To understand SGB taxation, you need to get acquainted with three tax situations that shall arise when you invest in such bonds.
- Interest income arising per year
- Capital appreciation on holding SGBs till maturity
- On transfer/sale of SGBs before maturity
Sovereign Gold Bond interest taxability
- Interest income arising per year
You shall receive 2.5% interest per annum credited to your bank account semi-annually. Interest earned on SGBs is taxable as per the financial year’s tax slab rates.
- Capital appreciation on holding SGBs till maturity
If you hold an SGB till maturity, i.e., for eight years, you are entitled to enjoy SGB tax exemption on long-term capital gains (LTCG) arising from the redemption of your bonds. However, this exemption is applicable only to individual investors and not to other investor categories like entities, trusts and Hindu Undivided Family (HUF).
- On transfer/sale of SGBs before maturity
If for any reason, you need to redeem or transfer your bonds before maturity, the tax on SGBs differs from the above scenario. SGBs can be traded on an exchange if held in Demat form. If you sell an SGB before maturity, you can avail of indexation benefits on LTCG.
You can also sell sovereign gold bonds in the secondary market if you don’t want to wait till the redemption date. After an SGB is issued, it is listed on the stock exchange with a unique ISIN Code. This listing is done 15 days after the issue date of the bond by the RBI.
You can trade them and book your capital gain in the financial year you sell your investment. The gain shall be booked as Short-Term Capital Gain (STCG) only if you have held the investment for less than three years and taxed as per the applicable tax slab. If the investment is held for more than 3 years, it will attract long-term capital gains as stated above.
Begin investing in SGBs to meet your financial goals investing in Sovereign Gold Bonds has lucrative benefits, along with tax exemptions, which are not present when you hold physical gold. Plan your SGB investments with the help of an expert to grow your wealth and fulfill your financial goals. Reach out to one today!
