Last updated on September 13th, 2023
INDEX
- What is SGB – Sovereign Gold Bond?
- Income Head for Sovereign Gold Bond
- Tax on Sovereign Gold Bond
- Applicable ITR Form in case of SGB
- FAQs
What is SGB – Sovereign Gold Bond?
SGB i.e. Sovereign Gold Bond are bonds that the government of India issues under the Sovereign Gold Bond (SGB) Scheme. SGB is government security denominated in grams of gold and is thus an alternative to holding physical gold. Investors such as Individuals, HUF, trust, university, and charitable institutions can invest in SGB. RBI i.e. Reserve Bank of India issues such bonds to the investors at an issue price with a fixed maturity.
The minimum investment is 1 gm and the maximum is 4 kg for Individuals and HUFs. It is 20 kg for trusts and other entities as per the government. The tenure for the issue of SGB bonds is 8 years. Premature redemption is only possible after the completion of 5 years of investment. Additionally, investors can sell the bonds in the secondary market at the existing market price of gold.
Income Head for Sovereign Gold Bond
Capital Gains on Sale of SGB
Income from Capital Gains would arise on the redemption of SGB or sale of SGB on the stock exchange. The definition of transfer of a capital asset as per Section 2(47) of the Income Tax Act covers both redemption and sale of SGB. While the redemption of SGB means its expiry on the date of maturity (including pre-mature redemption), transfer of SGB is its sale on a recognised stock exchange.
IFOS Income from SGB
The RBI on behalf of the government pays periodical interest on SGB. The rate of interest is 2.5% per annum on the amount of initial investment. Interest is credited semi-annually and the last interest is payable to the investor on the date of maturity along with the principal.
Interest on SGB is taxable under the head IFOS (Income from Other Sources). The taxpayer should report the interest under Schedule OS in the Income Tax Return.
Tax on Sovereign Gold Bond
Tax Treatment on Interest
The Interest on SGB is taxable at slab rates under the head IFOS (Income from Other Sources).
Section 193 for TDS on Interest on Securities specifically excludes deduction of tax on payment of interest on government security. Thus, TDS is not applicable for payment of interest on SGB.
Tax Treatment on Sale or Redemption
Individual Investor
- Redemption of Sovereign Gold Bond – The definition of transfer of capital asset excludes redemption of SGB. Thus, the Capital Gain on Redemption of Sovereign Gold Bond by an Individual Investor is exempt from tax.
- Transfer of Sovereign Gold Bond – If the individual investor transfers the Sovereign Gold Bond by selling it on the stock exchange, it is taxable as LTCG if held for more than 12 months at the rate of 20% with indexation benefit or 10% without indexation. However, if the SGB is held for up to 12 months, it is taxed at the slab rates applicable to the taxpayer.
Other Investors
In the case of investor other than individuals, the LTCG tax is at 20% with indexation benefit or at 10% without indexation benefit on transfer or redemption of SGB.
Applicable ITR Form in case of SGB
- ITR Form:If you have invested into SGB and earned Interest, you should file ITR-1 (ITR for IFOS Income). However, if you have redeemed or sold SGB, you should file ITR-2(ITR for Capital Gains Income).
- Due Date – 31st July of the Assessment Year.
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FAQs
What is the benefit of investing in SGB (Sovereign Gold Bond) over physical gold?
SGB is a government security that investors holds in demat form thus eliminating the risk and cost of holding physical gold. The investor need not worry about the purity of gold and need not pay making charges if they invest into SGB. The investment in SGB is safer than physical gold since SGB is a government security, pays periodical interest and assures market value of asset on maturity.
What would be the tax treatment if SGB is bought on the secondary market and held it till maturity?
If the investor buys SGB from the secondary market and redeems it after holding it until maturity, here is the tax treatment:
– Exempt if you are an Individual Investor
– Taxable at slab rates if STCG and at 20% with indexation benefit if LTCG if you are any other investor.
What is the rate of interest and how is it payable?
The bonds bear interest at the rate of 2.5% p.a. on the amount of initial investment. Additionally, the interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.
How will I receive the redemption amount?
The interest and redemption amount will be credited to the bank account furnished by the customer at the time of buying the bond.
Can I receive the bonds in the Demat form?
Yes. The bonds can be held in the Demat account. A specific request for the same must be made in the application form itself. Till the process of dematerialization is completed, the bonds will be held in RBI’s books. The facility for conversion to Demat will also be available subsequent to the allotment of the bond.
