The Buyt Desk
Gold is considered one of the safest investment options in India. The sovereign gold bond (SGB) is one of the ways to invest in online gold.
There are many upsides to investing in gold via sovereign Gold Bond, but the assured interest rate of 2.5% is one of the best, and therefore this product is higher on-demand than other avenues. The earned interest is paid to the bondholder biannually and goes directly into the account. But besides knowing about the gains you make from SGB, you should also be cognizant of how you will be taxed.
The interest and capital gains with SGB, the interest earned is taxable and are processed every year according to the bondholder’s tax slab. Nevertheless, the capital gains upon the sovereign gold maturity are non-taxable.
However, there is an anomaly prevailing about whether capital gains are taxable when the SGB bond is redeemed prematurely. It is one of the most asked questions on the RBI website. Therefore, you must have a clear understanding of how the interest earned from SGB and capital gain are taxed.
Though more clarity on the subject is still awaited, the experts in the field considered it exempted, provided the bondholder is redeeming it and not transferring it.
Sovereign Gold Bond Taxation
The SGB comes for the eight-year tenure. It comes with the option of early redemption after the fifth year, the date on which the interest is due.
According to the experts and reports, the long-term capital gain coming through SGB will be taxed at 20% and comes with an indexation advantage. If a bondholder is redeeming it after five years, i.e. the locking period but before eight years, i.e. the bond maturity period, the interest he will earn on SGB will be taxed just like income from other sources.
However, TDS would not apply to that bond. The interest earned on SGB gets taxed under the Income Tax Act of 1961. There will be no tax on capital gains coming from the SGB redemption. On the other hand, any long-term capital gains coming from SGB transfer are eligible for indexation benefits.
SGB is a better option to invest in gold in comparison to other avenues, such as digital gold, Gold ETF and physical gold. The interest of 2.5% earned is a bonus. It is over and above the price movement of gold even if it is taxed at the bondholders’ marginal slab rate, which for most investors is 30% plus surcharge and cess.
The conclusion, you make gains on gold prices moving up till maturity, which in most cases happens, and is free from tax.
And if you have a question about whether it is applicable on SGB purchased through any market, primary or secondary, i.e. stock exchange, the answer is yes.
