Sovereign Gold Bond, more popularly known as SGB, is a unique and different way of taking exposure in gold without actually worrying about challenges of investing in physical gold. It offers various benefits like independent pricing, purity, safety, regular income etc. However what makes it more lucrative is the taxation benefit it offers to the investors. With the help of this article, let’s try to understand the taxation of these bonds.
1. Interest Income: SGB offers the regular interest income to the investor. Currently the rate of 2.5% p.a. is offered on half yearly frequency. As per Section 193 (iv) of Income Tax Act, 1961 no tax should be deducted on interest paid on government security. Hence the withholding tax (TDS) is not applicable on interest income. However the interest income chargeable tax as per the normal income tax slab applicable to the each bondholder.
2. Capital Income: The treatment of capital income / loss is as follows:
a. Short Term Capital Gain (STCG): Any gain earned with holding period of less than 3 years falls under the category of STCG. This is chargeable to income tax as per the normal income tax slab.
b. Long Term Capital Gain (LTCG): Any gain earned with holding period of more than 3 years is treated as long term.
The long term capital gain is chargeable to tax at flat rate of 10% in case indexation benefit is not opted for. In case the indexation benefit is availed by taxpayer, the rate of income tax is 20%. Indexation is a technique by which income payments are adjusted by means of a price index so as to maintain the purchasing power of the individual after inflation.
Long Term Capital Gain at the time of Redemption
As per Section 47(viic) of Income Tax Act, any capital gain earned on redemption of these bonds is exempt for taxation to an individual. The exemption is available only to individual taxpayer and not to other categories like HUF, trusts etc.
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In case of short term losses on sale of SBG, under which head of ITR 3, should the loss be disclosed?
You have mentioned in 2 b) that LTCG applicable with holding period more than 3 yrs is 10% or 20%(with indexation). But again you have mentioned below that LTCG for individual is exempted. Does this mean that if you are holding the bond, you have to pay taxes, even if you don’t sell ?
INTEREST RECEIVED FROM SOVEREIGN GOLD BOND. IS IT TAXABALE UNDER IT ACT?
Nice article. Have a query. If I buy sovereign gold bond from the secondary market in Aug 2021 (originally issued in Aug 2020), whether I would be required to pay any LTCG if I held the bonds till maturity viz.: Aug 2029. Thanks
What is the answer for your query,as per my at the time of maturity it’s a taxable,
The interest on Sovereign Gold Bonds is taxable as per the provisions of the IT Act, 1961. In the case of SGB redemption, the capital gains tax applicable to an individual is exempted. Also, long-term capital gains generated are offered indexation benefits to an investor or when transferring the bond from one person to another.
What is the difference between redemption and maturity ? if you are saying its exempted from LTCG on redemption but again you are saying it’s taxable on maturity , it becomes confusing.
As per the provisions of the Income-tax Act,1961, any transfer of sovereign gold bond
(issued by the Reserve Bank of India) by way of redemption on maturity by an individual
taxpayer is not regarded as a transfer for capital gains purpose. Thus, there should be no
capital gains tax implications in the hands of an individual who buys such sovereign gold
bond (SGB) from a secondary market and redeems it on maturity,” said Parizad Sirwalla,
partner and head, global mobility services, tax, KPMG India.
Nice keep sharing valuable information