Sovereign Gold Bands are Government securities denominated in grams of Gold. We know that up to assessment year 2015-16, Wealth Tax Act was in force and assesses are required to file return of wealth tax, if their wealth or ornaments cost is more than Rs.5,00,000. For the value of gold or silver ornaments they have to attach valuation report of ornaments by approved valuer. After abolition of Wealth Tax Act, High Net worth Individuals were keeping valuation report with them for their safety. Gold ornaments are valued on the base of carets like 24 carets, 22 carets, 18 carets or 12 carets according vale is to be calculated.
So far as silver ornaments or utensils are valued as per 999 touch silver.
Sovereign Gold Bonds were introduced by Indian Government, in November, 2015, as a part of Gold Monetization Scheme. The purpose of this scheme was to invest gold as a Digital instead of Physical Gold. The bond is issued by Reserve Bank of India on behalf of Government of India.
The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption / premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest @ 2.5% payable after every six months. Please remember that this interest is taxable. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.
If the market price of gold declines, there may be a risk of capital loss. However, the investor does not lose in terms of in terms of the units of gold which has paid for.
Eligible Investor:
Any persons resident in India as defined under Foreign Exchange Management Act. 1999 are eligible to invest in SGB. Persons include individuals, Hindu Undivided Families, 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 or maturity.
One or more individual jointly can invest. Even minor can also invest but application is to be signed by either his/her father or mother.
Tenure of Investment:
From the date of investment, tenure will be of 8 years. If investor wish to make redemption of SGB, can make only after 5 years of investment.
During the financial year person can invest in multiple of 1 gram and maximum investment during the year for individual and HUF is 4Kgs and for trust 20Kgs.
If RBI wish to issue new scheme, the new price of SGB will announce, which will be decided on the base of gold price of last three days of week. SGB is also tradable at Stock Exchange.
A person can take loan, against SGB as Collateral Security.
Redemption of SGB:
On maturity, the gold bonds shall be redeemed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of 999 purity of previous three business days from the date of repayment. Published by the Indian Bullion and Jewelry Association Limited.
Amount of interest and redemption will be credited to the bank account furnished by the customer at the time of buying the bond.
Bond holder can gifted or transferred to a relative, friend or anybody who full fills the eligibility criteria, that means recipient must be Indian Resident, HUF, trusts, universities and charitable institutions. The bonds shall be transferable in accordance with the provisions of the Government Securities Act, 2006 and the Government Securities Regulations 2007 before maturity by execution of an instrument of transfer which is available with the issuing agents.
To understand this scheme take following example:
Mr. Shah has invested in SGB at the time of first issue, in November, 2015 at issue price of Rs.2,684 per unit. In April, 2023 reserve Bank of India has fixed the price of Rs.6.038 per unit as premature Redemption.
In the above case Mr. Shah get Rs.3,354 per unit as capital gain, which is not liable to tax. Over and above this Mr. Shah has received interest which is considered as income.
It is advisable to invest in Sovereign Gold Bond as safety.
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