Understanding Sovereign Gold Bonds (SGBs)
Sovereign Gold Bonds (SGBs) are government securities issued by the Reserve Bank of India (RBI) and are denominated in grams of gold. These bonds offer an alternative investment avenue for individuals who want to invest in gold without holding physical gold.
Key Features of SGBs:
- Exemption from Capital Gains Tax:
- Capital gains arising on redemption of SGBs on maturity are considered an exempt transfer under Section 47 of the Income Tax Act, 1961. Therefore, they are not liable to tax.
- While HUFs, trusts, universities, and charitable institutions are also eligible to invest in SGBs, the exemption from capital gains can be availed only by individual investors.
2. Tenure and Redemption:
- The tenure of SGBs is 8 years.
- Investors can redeem SGBs after the 5th year.
- The exemption provision does not distinguish between redemption on maturity and premature redemption. Hence, capital gains arising on redemption, regardless of timing, would be exempt from tax.
3. Disclosure in Income Tax Return:
- Exempt gains from SGBs should be disclosed under “Other Exempt Income” in Schedule EI of the income tax return.
- In the utility dropdown, select “Any Other” as the nature of income and provide the description.
Additional Points:
1. Not All Capital Gains Are Exempt:
- Not all capital gains from the transfer of SGBs are exempt from tax.
- SGBs can also be traded on recognized stock exchanges. Capital gains arising from selling the bonds to another investor would be taxable.
2. Indexation Benefit:
- If the bonds are held for more than 12 months, investors can claim the benefit of indexation of the cost of acquisition for computing long-term taxable capital gains.
- Long-term capital gains are taxable at 20% plus applicable surcharge and education cess after considering the taxation or 10% plus applicable surcharge and education cess without indexation, whichever is more beneficial.
3. Short-Term Capital Gains:
- If the bonds sold to another investor are held for 12 months or less, short-term capital gains on the sale will be taxable at the rate applicable to the investor.
4. Interest and Redemption:
- Besides the increase in the value of the bonds in line with the price of gold, investors receive interest on the initial issue price of the bonds twice a year.
- Upon redemption, interest is paid to the investor along with the maturity amount.
5. Taxation of Interest:
- Interest on SGBs, including amounts received upon redemption, is taxable as income from other sources.
- Disclose this interest in Schedule OS of your income tax return.
Remember to consult a tax advisor or financial expert for personalized advice regarding your specific situation.
