sovereign gold bonds Archives -

How Sovereign Gold Bonds Taxed?

Tue, 04 Oct 2022 04:04:02 +0000

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.

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Why Should You Invest in Sovereign Gold Bonds?

Mon, 25 Jul 2022 03:46:54 +0000

The Buyt Desk

Sovereign Gold Bonds are issued by the Reserve Bank of India to retail investors. It is the newest way of holding e-gold. There is no exchange of physical gold. Sovereign gold bonds are held in either a Demat account or through a paper bond.

For the financial year 2022-23, RBI issued the first tranche of SGB on June 20, 2022. It was open for buying the bond for 4 days i.e until June 24, 2022. The price was fixed at Rs 5,091 per gram of gold. And as per the government decision, a discount of Rs 50 per gram was given to the online investors and to investors who paid digitally. The second tranche will be available from August 22, 2022, till August 26, 2022.

What investors should know about the SGB scheme?

Who can invest in SGB – The gold bonds under the SGB scheme can be bought by Resident individuals, Hindu Undivided Families (HUFs), universities, trusts and charitable institutions. Even individuals on behalf of a minor child or jointly with another person can buy the bonds.
Price per gram – The gold bond’s nominal value is proportional to the simple average closing price of 3 days of 999 purity gold. This value is arrived at by the India Bullion and Jewelers Association Ltd (IBJA). The final three business days of the week prior to the subscription period are considered for the calculation of the price per gram of gold.
Interest SGBs offers – SGB offers fixed interest of 2.50 % per annum to the investors. Interest is paid twice annually, every 6 months on the nominal value. The interest paid is apart from the rise in the value of gold at the time of redemption.
Tenure of SGB – The tenure of SGB is eight years. But premature redemption after the fifth year is possible.
Buying SGB – The gold bonds are sold through commercial banks, Clearing Corporation of India Limited (CCIL), Stock Holding Corporation of India Limited (SHCIL), National Stock Exchange and BSE and designated post offices (as may be notified). Bonds can either be purchased directly or through agents.
SGB payment – The SGBs can be brought by paying in cash (only up to Rs.20000/-), demand draft, cheque or electronic banking.
Buying Size – Investment will be in multiples of one gram of gold. As per the rules, the minimum investment will be one gram and the maximum can be up to 4 kg for individuals, 4 Kg for HUF and 20 kg for trusts and similar entities per financial year. The limit is calculated considering the bonds brought across the tranches in that financial year including the ones purchased from the secondary market.
Tradability – The SGBs are eligible for trading.

Benefits of investing in SBG

Safe investment – SBG is a sovereign guarantee as they are issued by the Reserve Bank of India (RBI) on behalf of the government. They are always a safe bet.
Add on interest – The gold price keeps increasing. Similar to physical gold, even the price of gold in bonds keeps increasing. Apart from this increase in price, one will also get 2.5 % fixed interest annually on the investment. So the investment is growing and also paying you interest every 6 months.
Tax – There is tax exemption to an individual on the capital gains tax on redemption of SGB. To any person transferring the SGB, on long-term capital gains, the indexation advantage is provided. But the interest on SGBs is taxable as per the provision of the Income Tax Act, 1961, (43 of 1961).
No Cost for the safety of gold – SGBs have no holding or storage cost, unlike digital gold.
Collateral for Loans – The SGBs help you in liquidity as they can be used as collateral for loans. It is similar to gold loans. Even the loan-to-value (LTV) ratio is equal to ordinary gold loans as directed by the Reserve Bank from time to time.

Summing up

All investors who want to buy physical gold should buy gold bonds instead. As discussed above, they are a great credit-risk-free form of investment. Unlike physical gold and digital gold, SGB has no making charges or annual fees and also has indexation benefits. SBG comes with storage cost-free and charge-free gold investment. SGBs are completely safe, as the RBI is the guarantor. The best deal is 2.5% fixed interest annually earned by the investment. So, one should definitely go for sovereign gold bonds.

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Sovereign Gold Bond – What makes it Better Than The Other Gold Investments?

Mon, 03 Jan 2022 12:33:31 +0000

The Buyt Desk

Gold is a popular investment, especially when there are concerns and uncertainty in the market. The yellow metal proved itself to be the safe-haven investment in the CoVID times. Gold is a hedge against inflation and equity. Whenever equity shows a downward trend and inflation rises gold shines. Gold investment should always be held for a longer time. But buying the right gold from the right people has always been a challenge. With the intent of reducing the risk factors associated with the gold purchase, the Government of India has launched the sovereign gold bond (SGB). By investing in Sovereign gold bonds, investors would be able to avert risk factors associated with holding physical gold and also get a benefit of interest. Here are the features of sovereign gold bonds and their benefits.

Features Of Sovereign Gold Bond

It has government backing. The Reserve Bank of India issues it on behalf of the Government Of India.
The return on investment will be higher as it is higher than the actual return on gold.
Additional 2.50 % interest per annum on the amount of investment. Interest is paid in half-yearly mode.
Bonds will have the guarantee of the sovereign on redemption amount and the interest earned.
The minimum investment is 1 unit which is equal to 1 gram. The maximum investment is 500 grams.
It is available in paper form and Demat.
It can be traded on the national stock exchange of India (NSE).
The maximum holding tenure is eight years. The exit option is available after the fifth year.
Will be issued via NSE, Banks, BSE, stock holding corporation of India and designated post offices.

Benefits Of Sovereign Gold Bond

It Is The Safest – It comes with zero risk of handling.

Gives Return – You get 2.50% assured interest on the initial investment amount per annum.

Gives Tax Benefits – Interest earned is exempted from tax. There will be no tax on capital gain upon selling the bond.

Purity Assurance – Whilst purity of gold is one of the main concerns with physical gold. It is not more with sovereign gold. RBI will announce the unit price before the issue date. The price will be fixed on the average gold price in the previous week with 999 purity published by IBJA.

Sovereign Guarantee – You get a sovereign guarantee on the interest and redemption amount.

Simple Exit Option – The bond tenure is eight years. However, an investor can redeem the bond from the 5th year onward.

Can Be Used As Collateral – It can be used as collateral for the loan.

Can Be Traded On Exchange – SGB is tradable on exchanges.

Low Keeping Cost – You do not have to spend any amount on keeping SGB.

No GST and Making Charge – SGB comes in a paper form, thus it attracts no making charge or GST.

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