SGB Taxation Rules: Budget 2024 Updates You Should Know

SGB taxation has been subject to several changes after the Budget 2024 announcement. The applicable LTCG (Long-term Capital Gains Tax) and STCG (Short-term Capital Gains Tax) rules have changed after the release of the Union Budget last year. While there has been a reduction in the LTCG tax rate (without indexation benefit), the STCG associated with SGBs remains the same. 

Learn in detail about sovereign gold bond taxation and exemption as applicable after Budget 2024.

SGB Taxation on Transfer or Sell on Stock Exchange

Investors can exit their Sovereign Gold Bond (SGB) investment prior to the RBI (Reserve Bank of India) buyback. The regulations allow them to opt for either of the following two options:

• Selling SGB on stock exchanges (NSE and BSE)
• Transfer of ownership of sovereign gold bonds

If you, as an investor, want to sell SGB on stock exchanges, ensure you hold them in dematerialised (demat) format or convert them into the same format. In case you do not hold SGB in demat format, you can transfer its ownership or sell these bonds in accordance with Government Securities Act, 2006 under Government Securities Regulation, 2007 with relevant forms. 

Selling SGB on stock exchanges is subject to taxation based on the holding period such as long-term or short-term holding. For instance, if you sell SGB within 12 months, short-term capital gain tax (STCG) applies based on your income tax slab rate. On the other hand, if you sell SGB after a longer holding period, a 12.5% LTCG (long-term capital gains tax) applies without indexation. 

Taxation on Sovereign Gold Bond Before Budget 2024

Before Budget 2024, the rate of LTCG and STCG varied from the existing rates. If investors held sovereign gold bonds for more than 36 months, long-term capital gains tax was applicable at the rate of 20% with indexation benefit and 10% without indexation benefit, based on the advantages for the investor.

The above-mentioned benefits were applicable under the fourth provision of Section 48 of the Income Tax Act, 1961. On the flip side, if investors held SGB for less than 3 years, short-term capital gains tax was applicable as per the investor's income tax slab and effective rate.

Taxation on Sovereign Gold Bonds After Budget 2024 (Stock Exchange Sale)

After Budget 2024, certain changes in SGB taxation and exemption have been introduced as follows:

• Removal of indexation benefit
• STCG applies if held for less than 12 months, taxed at income tax slab rates
• LTCG applies if held for more than 12 months, taxed at 12.5% under Section 112

Gold Bond Taxation on Redemption Through RBI Buyback Windows

The RBI’s buyback window starts from the fifth year of SGB issuance. If you wait till the fifth year for SGB investment redemption, as an individual investor, you will be exempt from taxation. In other words, as per SGB taxation and exemption rules, redemption of gold bonds after the RBI buyback window does not attract capital gains tax. 

SGB Tax Exemption 

LTCG and STCG apply on the sale of SGB in the secondary market on Indian stock exchanges such as NSE and BSE as per applicable rates. However, SGB tax exemption applies on redemption of gold bonds at the time of RBI buyback through a dedicated window as discussed above. 

Thus, SGB is exempt from capital gain tax when RBI considers the buyback of such bonds after 5 years. The tax exemption is based on the rule that redemption does not refer to the transfer of SGB ownership. This exemption applies under Section 47 (VIIC) of the Income Tax Act, 1961 wherein there is redemption or maturity of gold bonds.

Notably, taxation and exemption rules apply to redemption, sales and ownership transfer of SGB. You can buy sovereign gold bonds in the primary market during issuance or secondary market on stock exchanges to avail tax benefits on sales or redemption.

Final Word

SGB taxation and exemption rules highlight that LTCG applies at the rate of 12.5% without indexation benefit if held for more than 12 months (based on Budget 2024). The revision in LTCG rules indicates a reduction from 20% LTCG (with indexation benefit) and an increase from 10% (without indexation benefit) after the last Budget. 

Notably, the redemption of gold bonds after maturity or on RBI buyback attracts no LTCG or STCG. Based on your financial goals, you can invest in bonds. You can acquire detailed information from Stable Money based on your enquiry.

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