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We often come across people who like to invest in tax-friendly and secure modes. Especially in a country like India, where people tend to believe investment in gold is the most concrete, safe, and return-generating. But, because of these traditional conventions of society, a significant quantity of gold was not traded in the market, and huge stocks were withheld in households. To curb the practice Indian government came up with an alternative in the name of Gold Bond. The Government launched the Sovereign Gold Bond Scheme in November 2015 under the Gold Monetisation Scheme. The RBI (Reserve Bank of India) notifies the terms and conditions for the scheme from time to time.
To fully comprehend the type of investment, tax benefits, lock-in, returns, and much more, read the complete article below.
Sovereign Gold Bonds are government securities denominated in grams of gold. These gold bonds are now a days used as a substitute for holding physical gold. Those who subscribe to these bonds are known as Investors. These investors are required to pay the issue price in cash and the bonds will be redeemed in cash on maturity And, no physical exchange of gold would actually be made.
About Sovereign Gold Bond Scheme
Sovereign Gold Bonds (SGBs) in India are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. These bonds are a financial instrument that allows individuals to invest in gold without physically owning it. SGBs are denominated in grams of gold and offer investors the opportunity to earn interest, along with the potential for capital gains linked to the price of gold.
The final tranche of Sovereign Gold Bonds (SGBs) for the 2023-24 series opened on February 12, 2024 for subscribers and will close on February 16, 2023.The allotment will be done on February 21, if the application is successful.
The price history of SGB for FY 2023-24 is as follows:
| Series | Month | NSE Ticker | Price/gm |
|---|---|---|---|
| Series IV | February | SGBFEB32IV | ₹6,263 |
| Series III | December | SGBDEC31III | ₹6,199 |
| Series II | September | SGBSEP31II | ₹5,923 |
| Series I | June | SGBJUN31I | ₹5,926 |
The price history of SGB for FY 2022-23 is as follows:
| Series | Month | Price per Gram |
|---|---|---|
| Series 1 | June 2022 | Rs. 5,041 |
| Series 2 | August 2022 | Rs. 5,091 |
| Series 3 | December 2022 | Rs. 5,409 |
| Series 4 | March 2023 | Rs. 5,611 |
The price history of SGB for FY 2021-22 is as follows:
| Series | Month | Price per Gram |
|---|---|---|
| Series 1 | May 2021 | Rs. 4,777 |
| Series 2 | May 2021 | Rs. 4,842 |
| Series 3 | June 2021 | Rs. 4,889 |
| Series 4 | July 2021 | Rs. 4,807 |
| Series 5 | August 2021 | Rs. 4,790 |
| Series 6 | September 2021 | Rs. 4,732 |
| Series 7 | October 2021 | Rs. 4,765 |
| Series 8 | November 2021 | Rs. 4,791 |
| Series 9 | January 2022 | Rs. 4,786 |
| Series 10 | March 2022 | Rs. 5,109 |
To buy Sovereign Gold Bonds (SGBs) in India, you can follow these steps:
Resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB. Eligible investors include individuals, HUFs, trusts, universities and charitable institutions. Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGB till early redemption/maturity.
Many distinct features of gold bonds make it an attractive investment option too. Like,
The minimum quantity that a person can buy is 1 gram. Whereas,
These limits are to be calculated for all the bonds subscribed during one financial year. In the case of joint holding, the limit applies to the first applicant.
Anyone can apply for the bonds through
National Saving Certificate agent can act as advisors or agents. They would be authorized to collect the application form and submit to banks and post offices. Bombay Stock Exchanges (BSE) and National Stock Exchange (NSE) are included as receiving offices, apart from the commercial banks.
The reason why one should buy SGB rather than physical gold under the SGB scheme depends upon several factors like,
SGB differs from physical gold and ETF in numerous ways, such as
| S No | Particulars | SGB | ETF | Physical gold |
|---|---|---|---|---|
| 1 | What these schemes mean | These are the gold bonds issued in paper form by the government and can later be converted into DEMAT form also. There is no physical gold consorted against such bonds. You can get the payment on maturity and purchase physical gold from market under this option. | Gold ETF – are the securities equivalent to gold prices traded over the stock market. These can be purchased by anyone trading online during the trading hours. Can be sold and purchased at the convenience of buyer. No gold is actually taken or given. You can purchase gold by selling the securities and realizing the money. | This is what we all have witnessed in our households and society since ages. In this conventional method actual metal gold is purchased from the market. This is generally stored in form of gold ornaments or articles. With the possession of physical gold, there comes a high risk of theft and keeping it safe. |
| 2 | Lock India | 8 year but money can be withdrawn at 5th ,6th and 7th year as well | No lock-in period can be purchased and sold online anytime. | No lock in under this mode too. It can be sold in the open market as per the will of the investor and immediate cash can be realized. |
| 3 | Return | Returns are generally higher due to periodical interest earned on bonds + lower purchase value because of no making charges | Returns are lower than actual gold returns. The reason being loss due to trading charges and taxes for making transactions through stock exchange. | Returns are normally lower due to the high making charges involved. |
| 4 | Taxability | No tax if sold after complete 8 years tenure.(Otherwise, Capital gain tax is leviable as per normal provisions) | Capital Gains Tax is levied as per the provisions of the Income Tax Act. i.e LTCG is payable @ 20% after three years | Capital Gains tax is levied as per the provisions of Income Tax Act. i.e LTCG is payable @ 20% after three years |
| 5 | Minimum Purchase Quantity | Minimum amount one can buy bonds of shall not be below 1 gram. | No minimum purchase quantity has been prescribed | Any quantity can be purchased as per the will of purchaser. Even if the same is below 1 gram. |
| 6 | Purchase Cost | Low as the same is borne by the government. Infact online purchases and digital payment further reduces purchase cost by Rs 50 per gram. | In comparison to SGB the purchase cost is high as trading charges, commission and relevant taxes are payable. | Highest purchase cost due to huge making charges imposed by the seller. |
| 7 | Purity of Gold | Highest | Highest | Lowest |
| 8 | Liquidity | Least liquid option amongst these three. Because it cannot be sold before 5 years (minimum). | High Liquidity because can be sold online during the trading hours. | Highly Liquid |
| 9 | Collateral | Can be kept as collateral | Cannot be used as collateral for securing loans | Can be used for collateral purposes. |
| 10 | Safety of Gold | Least risk as to theft because security is hold either in paper or DEMAT form. | Risk is negligible due to electronic transfer of traded units. | Highest in risk. Resulting from physical possession of the gold metal. |
Regarding capital gains, Sovereign Gold Bonds are redeemed at the end of 8 years. Any capital gains you earn at the end of 8 years will be considered entirely tax-free. The government extends this tax benefit to encourage investors to invest in Gold Bonds instead of physical gold.
However, the tax treatment differs if you exit your Gold Bond investment earlier. There are two popular ways to exit a Gold Bond investment: the first is via the early redemption window at the end of 5 years, and the second is to sell your bonds in the secondary market. In both cases, capital gains will be taxable according to the usual definition of short-term and long-term capital gains. If it is the former, the rate applicable will be at its peak. If it is the latter, then the investor can choose between a flat tax rate of 10% or 20% after considering indexation.
Thus, overall, investing in Sovereign Gold Bonds and holding on until the redemption period is over could result in tax benefits that help you save a considerable sum while filing taxes. Plus, you can easily store your Gold Bonds without having to deal with the worry of storing physical gold.
Furthermore, Sovereign Gold Bond tax benefits occur at three levels. Firstly, you receive interest at the rate of 2.5% on your Gold Bond holdings. This interest is entirely taxable, that too, at the peak rate of tax. Thus, if you are in the 30% tax bracket, you will have to pay tax on whatever interest you earn via Gold Bonds. Note that since tax Deducted at Source (TDS) is not applicable on Gold Bonds, you will have to show this income when you file your returns and pay advance tax accordingly.
Want to know how tax can impact your investment in Sovereign Gold bonds and how you save the maximum, connect with our experts.
Thus, overall, investing in Sovereign Gold Bonds and holding on till the redemption period is over could result in tax benefits that help you save a considerable sum while filing taxes
If you make a profit selling gold, you might have to pay capital gains tax on the earned profit. The taxation of gold sales is determined by how long you've held it—either as short-term capital gains or long-term capital gains.
If you sell gold and silver after holding them for more than three years i.e. more than 36 months, you may be subject to long-term capital gains tax. The tax on LTCG on gold and silver is subject to a fixed rate of 20 per cent and a four per cent cess, with the added advantage of indexation.
If you sell gold and silver within three years of purchase i.e. before 36 months, you may incur short-term capital gains tax. The STCGs are taxed based on the applicable income tax slab rate.
It is the substitute for holding physical gold. You can redeem the bonds after eight years of maturity. However, you can redeem the bonds at the end of five years of purchase, too. The taxation rules are:
If you redeem within the initial five years, it will be classified as LTCGs. LTCG from SGB is subject to a 20 per cent tax rate with indexation benefits or a 10 per cent rate without indexation benefits. The interest earned on SGB is not exempt from taxes and is reported as income from other sources.
The taxation of gold ETFs and gold saving funds purchased before and after March 31, 2023, is distinct, impacting their capital gains treatment:
Pre-March 31, 2023:
Treated and taxed similarly to physical gold.
Qualify as long-term capital assets if held for 36 months or more. Will be taxed at 20 per cent with indexation benefits.
Taxation occurs upon sale or redemption.
Post-March 31, 2023:
Taxed as short-term capital gains regardless of how long you hold it.
Taxation occurs upon sale or redemption.
Will be taxed at slab rates.
And, understand deeply, what happens when we invest the same amount in three different types Physical Gold, SGB, and Gold ETF
Investment amount- Rs 1,00,000
Investment Horizon- 1-year
Annual appreciation in Gold Price-10% [Assumed]
Average Inflation – 5% for the period 5year [Assumed]
Individual tax slab- 10% [Assumed]
This table shows that if someone want to invest in any of the three types how much return they can get as we can see from this table physical Gold net profit is 9,000 per annum which is same as to Gold ETF but lesser than SGB which is 12,500 Net profit per year, not only this it is less risky as compared to physical Gold and Gold ETF.
*No tax has been calculated for SGB assuming they have been sold after completion of tenure.
Yes a minor can apply though his / her guardian. No direct application can be made in this case.
Yes, if you make all the compliances correctly you can be sure about the allotment. Such compliances are
Yes, an online application can be made through the website of the listed scheduled commercial banks. Infact, the subscription can be made at Rs 50 less per gram when it is made online and the payment is also done though digital mode.
For premature withdrawal investors can file a request before 30 days of coupon date to requisite
The time period can further be reduced on request but shall in no case be lesser than one day before the coupon date. on successful processing of the application payment would be credit to registered bank account of the investor.
SGB can be used at par for taking up of loans as done in case of ordinary gold. The loan to value ratio will depend on the RBi circulars issued from time to time. SGB can work as eligible collateral for taking up loans form
Interest on the Bonds is taxable as per the provisions of Section 43 of the Income-tax Act, 1961. The capital gains tax on redemption of SGB is exempted for individuals. also, indexation benefit on long term capital gain will be available for everyone on transfer of bond(s).
Payment can be made in any of the following ways
In the eventuality of death of an investor following two conditions can be encountered
in this case the nominee shall approach Receiving Office to file its claim. The claim will be recognized on the guidelines set under the provisions of Government Securities Act, 2006.
If no nomination has been made then executors or administrators of the deceased investor or holder of succession certificate shall submit their claim to the Receiving Office or Depository.
The same process needs to be followed in case of minor investor too. But if the resulting beneficiary is minor than the title shall be transferred in name of person fulfilling the government’s eligibility criteria.
Reserve Bank of India has given a dedicated e-mail id i.e. sgb.rbi.org.in for the public to ask their queries. You can mail your query to the given mail id relating to issues on Sovereign Gold Bonds.
Normally, there are no chances of incurring loss while investing in SGB. But, there might be a scenario when the prices of gold fall over the time period. Even in this situation a person will not lose in terms of units of gold. The unit of gold purchased at the time of investment will remain same.
The redemption of bond is done after 8 years from the date of purchase. But, premature redemption is allowed form the 5th year itself. In case an investor wishes to liquidate the investment even before 5 years then the same can be transferred to other eligible person offline or offline if held in demat form.
The prices are announced by RBI with every announcement of tranche. the nominal price is computed on the basis of simple average of closing price of gold of 999 purity. Where, the closing prices are published by the India Bullion and Jewelers Association Limited. The last 3 business days of the week preceding the subscription period are to be considered for this calculation.
The eligible investors for Sovereign Gold Bonds are
An individual investors who occupied SGB at the time of being resident in India can continue to hold SGB till early redemption/maturity.
No, NRI though allowed to invest in all other gold funds and ETFs, cannot subscribe to SGBs. But, if an NRI hold SGB as a result of its earlier status as resident Indian then the same is allowed subject to
Yes, joint holding is allowed in case of gold bonds.
The application form can be taken form nay of the following organisations
Banks may also depending upon internal policies, provide online application facility.
Every application for SGB shall be accompanied by the ‘PAN Number’ issued by the Income Tax Department to the investor(s). and, the same suffice for the Know Your Customer norms.
No. An investor cannot have more than one unique investor Id linked to any of the prescribed identification documents. The same unique investor ID is also to be used for all the subsequent investments in the gold bond scheme. Also, for holding securities in dematerialized form, quoting of PAN is mandatory while filling up the application form.
The Certificate of Holding is issued to the customer on the date of issuance of the SGB itself. The certificate can be collected either from
(if email address is provided in the application form.)
The nominal value of Gold Bonds shall be in Indian Rupees. It is fixed on the basis of simple average of closing price of gold of 999 purity. The same is published by the India Bullion and Jewelers Association Limited, for the last 3 business days of the week preceding the subscription period. A person subscribing online and making payment in digital mode gets subscription at Rs 50 lower than the actual value for each gram.
No, the RBI does not publish gold prices everyday. Instead, the price for the relevant tranche is announced on Reserve Bank of India’s official website two days before the issue opens.
The redemption value of gold bonds will be based upon the simple average of closing price of gold of 999 purity. Which is to be taken for previous 3 business days from the date of repayment. It is to be published by the India Bullion and Jewelers Association Limited. The amount will be transferred to the bank account and in indian rupees.
To redeem SGB follow the process mentioned below
If your friend or relative fulfills the eligibility criteria then these bonds can be gifted or transferred on their names. The transfer procedure shall be governed by the provisions of the Government Securities Act 2006 and the Government Securities Regulations 2007 before maturity. It shall be done by execution of an instrument of transfer. The same is available with the issuing agents.
Yes, nomination facility is available as per the Government Securities Act 2006 and Government Securities Regulations, 2007. A nomination form is attached with the Application form. A NRI can be nominee and as a result can get SGB transferred on his own name but
You can download all Reserve Bank of India circulars on sovereign Gold Bonds from
No, since the redemption on maturity is tax free no TDS is applicable on the bond. However, the investor shall comply with the tax laws.
