Gold has always been one of the most reliable and popular investment options in India. But to limit the import of this precious metal, the Government of India launched the Sovereign Gold Bond (SGB) scheme in 2015. Since then, it has continued to launch different tranches of this scheme at regular intervals.
What Are Sovereign Gold Bonds (SGBs)?
Sovereign Gold Bonds (SGBs) are government-backed securities issued by the Reserve Bank of India (RBI). These bonds allow you to invest in gold without actually buying physical gold.
Key Features & Benefits:
- You invest in gold in paper/digital form.
- Each unit represents 1 gram of gold.
- You get a fixed 2.5% interest per year, paid every 6 months.
- Bond tenure is 8 years, but you can exit after 5 years.
- At maturity, you get the current market value of gold.
- No storage risk, no making charges, no purity issues.
Tax on SGBs (AY 2025–26)
As per the Finance Act, July 2024, here is how tax applies:
Interest Income:
- The 2.5% annual interest is taxable as “Income from Other Sources”.
- You pay tax as per your income tax slab.
Capital Gain on sale/Redemption of SGBs:
| Situation | Tax Treatment |
| Held till 8-year maturity | Capital gains fully exempt for individuals. |
| Premature redemption after 5 years through RBI | Capital gains fully exempt for individuals. |
| Sold on stock exchange(NSE/BSE) within 3 years | Short-Term Capital Gain — taxed as per your income slab. |
| Sold after 3 years (in secondary market) | Long-Term Capital Gain — taxed at 12.5% (no indexation) as per Finance Act, July 2024. |
Government Reduces Gold Import Duty from 15% to 6% in July 2024 Budget
On 23rd July 2024, the Government of India, through its Union Budget, announced a significant reduction in the import duty on gold, slashing it from 15% to 6%. This move aims to:
- Align domestic gold prices with international markets,
- Curb illegal gold imports (smuggling),
- Encourage formal gold trade through regulated channels.
However, this policy change also carries important implications for Sovereign Gold Bond (SGB) investors, as lower import duties may reduce the pace of gold price appreciation, ultimately affecting the returns from SGBs.
Impact of Gold Import Duty reduction from 15% to 6% on SGB Returns
When you invest in Sovereign Gold Bonds (SGBs), your final return depends mainly on how much gold prices increase over time.
Imagine the import duty on gold as a kind of “protective umbrella” over domestic gold prices.
- When the umbrella is big (high duty like 15%), it blocks cheaper foreign gold from entering the market.
- This keeps Indian gold prices higher.
- So, SGB values also grow faster — giving investors higher returns.
- But when the government shrinks the umbrella (lower duty like 6%), cheaper gold easily comes into India.
- This increases supply.
- And domestic prices go down or grow slowly.
- So, SGBs bought now may not rise much in value.
What Is Import Duty, and Why Does It Matter?
Import duty is a tax the government charges when gold is brought into India i.e. Purchase from another Country. A higher duty means costlier gold in India — and usually pushes domestic prices up.
When the duty is reduced, gold becomes cheaper. This can make domestic gold prices fall or rise slower.
Since SGBs pay you based on gold prices at redemption, your final return also drops.
Should You Still Invest in SGBs?
There’s no one-size-fits-all investment.
But considering:
- Government guarantee
- Tax-free maturity gains
- Fixed interest income
- Safe and storage-free investment
SGBs still remain one of the most efficient and secure ways to invest in gold.
Just remember: newer SGBs may offer lower overall returns than older ones due to slower gold price growth. Match it with your financial goals before investing.
Author Bio
SGBs are no longer being issued. Govt has discontinued the scheme. While his effort is commendable, the young author must try to be uptodate while trying to make any contributions.