Important Keyword: Income from trading, Income Tax, SGB.
Table of Contents
Tax on Sovereign Gold Bond
In November 2015, the Government unveiled the Sovereign Gold Bond Scheme to provide individuals with an alternative avenue for investing in gold, eliminating the need for physical possession of the metal. This initiative allows investors to earn returns linked to the prevailing market price of gold. Furthermore, the Reserve Bank of India (RBI) releases the scheme gradually over time, offering investors opportunities to participate at different intervals.
What is a Sovereign Gold Bond?
The Sovereign Gold Bond (SGB) Scheme, initiated by the Government of India in the form of bonds, offers investors an innovative way to invest in gold without the need for physical possession. These government securities are denominated in grams of gold, presenting an alternative avenue for individuals, HUFs, trusts, universities, and charitable institutions to invest. Issued by the Reserve Bank of India (RBI) at a fixed maturity with a predefined issue price, SGBs have a minimum investment requirement of 1 gram and a maximum limit of 4 kg for individuals and HUFs, and 20 kg for trusts and other entities.
The tenure for SGB bonds is set at 8 years, with premature redemption only permissible after 5 years. Investors also have the option to sell their bonds in the secondary market at prevailing gold prices.
Taxation on Sovereign Gold Bond
Capital Gains: When investors sell or redeem their SGB holdings, capital gains arise, subject to taxation. However, the redemption of SGB upon maturity is specifically excluded from the definition of a capital asset transfer.
Income from Other Sources (IFOS): The RBI pays semi-annual interest on SGB at a rate of 2.5% per annum, with the final interest paid upon maturity along with the principal. This interest is taxable under the head IFOS and must be reported in the Income Tax Return.
Tax Treatment on Interest: The interest on SGB is taxed at slab rates under IFOS. Notably, TDS is not applicable for interest payments on government securities, as per Section 193 of the Income Tax Act.
Tax Treatment on Sale or Redemption
For individual investors, the taxation landscape surrounding Sovereign Gold Bonds (SGBs) offers a unique perspective. When an individual investor redeems their SGB upon maturity, the capital gain realized from this transaction is exempt from tax, as the definition of capital asset transfer excludes SGB redemption. However, if an investor opts to sell their SGB before maturity, any capital gains accrued will be subject to Long-Term Capital Gains (LTCG) tax.
In the event of transferring SGBs by selling them on the stock exchange, individual investors face LTCG taxation if the bonds are held for more than 12 months. This taxation is levied at a rate of 20% with the benefit of indexation or 10% without indexation. For SGBs held for up to 12 months, the applicable tax rate aligns with the individual investor’s slab rates.
Contrastingly, investors other than individuals encounter a different tax regime. In their case, LTCG tax on the transfer or redemption of SGBs is set at 20% with indexation or 10% without indexation. This distinction underscores the nuanced taxation framework governing SGB investments, catering to the diverse needs and circumstances of investors.
Applicable ITR Form in case of SGB
| ITR Form | If you have invested in 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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Official Income Tax Return filing website: https://incometaxindia.gov.in/
