Advertisement

Sovereign Gold Bond Tax-Exemption with Example – STCG | LTCG | TDS

Sovereign Gold Bond Tax-Exemption

Sovereign Gold Bond

In this article, we will discuss Sovereign Gold Bond Tax-Exemption in 2022. Before we discuss tax implications on SGBs, let’s understand in brief what is Sovereign gold bond. For more details, you can refer to the main article published on profitsolo.com

Also Read Sovereign Gold Bond : Best Returns on Gold Investment

Sovereign gold bond is government-backed securities denominated in grams of gold. These bonds are issued by RBI on behalf of the Govt of India. Provide a perfect substitute for physical gold which frees one from the heck of holding physical gold. It does provide a fixed return plus the market price of the gold on maturity.

I’m just reiterating the salient features of the SGB so to freshen up your memory:

  • SGBs will be denominated in grams of gold and the multiples thereof. As an investor, a minimum subscription of 1gm is permissible and this can go up to 4kgs for individuals and HUFs, and 20kgs for trust and entities as notified by GOI in circulars.
  • The investors will earn interest on the principal as notified by RBI for a particular tranche at the time of its launch and are payable semi-annually. In addition, the last interest plus the principal amount will be paid at maturity. Currently, the rate is 2.5% fixed.
  • The maturity period for SGBs is 8 years and offers an exit option from the 5th year onwards that can be exercised on the interest payment dates.
  • The redemption amount will be paid on the simple averages of the closing price of the last 3 business days in Indian Rupees from the date of repayment and as published by the India Bullion and Jewelers Association Limited.

Also Read Sovereign Gold Bond – Return Calculation 2021 | Dates | FAQs

Sovereign Gold Bond Tax-Exemption

Advertisement

Now let’s discuss the Sovereign Gold Bond Tax-exemption and what benefits it offers from a tax perspective.

Well, SGB offers capital gain tax exemption benefits to its investors if they hold the bond till maturity. Capital gain refers to an appreciation of the asset value which can be realized on the sale of the asset. There are two types of capital gains short-term and long-term.

Short-term Capital Gain: Any gains earned on holding assets for more than 3 years or less will be considered as short-term capital gains. These gains will be taxable per the bondholder’s income tax slab.

Long-term Capital Gain: Refers to the gain earned over holding an asset for more than 3years. LTCG is chargeable at a flat rate of 10% in case indexation benefit is not opted or else 20% with indexation benefit. Indexation is a way by which income payments are adjusted against inflation to maintain the purchasing power of the individual.

On top of that TDS does not get deducted as per section 193(iv) of the income tax act, 1960 which states tax should not be deducted on the interest paid on government securities.
However, the interest on SGB is taxable as per the income slab the bondholders fall in.

Also Read Sovereign Gold Bond SBI | How to Buy SGB Online?

Let’s exemplify this for your understanding by taking varied scenarios:

There is a salaried investor named David whose annual income is 10lac. From the investment point of view, he purchased SGBs worth 1lac today.
As we know SGBs come with a fixed maturity of 8 years which is considered long-term from the capital gain aspect. Let’s study the probable scenario for David:

Also Read SBI Loan Against FD: Interest Rate

Example

  1. He holds the SGBs till maturity and receives semi-annual interest till 7.5 years at a rate of 2.5%.
    Answer:
    Capital gain will be exempted in this case as he holds till maturity. However, his annual income is 10lac so falls in the 20%  income tax slab. And the interest he earned semi-annually for 2.5% will come under income from other sources. He can claim a tax deduction of interest earned in the 80C limit if it’s not fully utilized to make these bonds completely tax-free. Or else he can pay 20% on the total interest earned in that assessment year.
  2. After 5 years let’s say David needs money so he redeems the SGB.
    Answer:
    As 5-year tenure will be considered as long term and he broke this SBG before maturity so liable to pay capital gain tax at 20% with indexation benefit or at a flat rate of 10% without indexation benefit. Along with tax on interest, he received semi-annually if the 80C limit is fully utilized as per the tax slab.
  3. Let’s say David sold off SGBs in the secondary market then what could be the tax implications.
    Answer:
    SGBs are tradeable and transferrable as per the Government securities Act,2006. In case he sells SGBs before three years then he is liable to pay only income tax on semi-annual interest until 3 years. Post 3 years he will be liable to pay long-term capital gain tax at 20% with indexation benefits.

Also Read How to Buy & Sell Sovereign Gold Bond in Zerodha? Gold Bond Taxation | Gold ETF vs Gold Bond

Sovereign Gold Bond Scheme 2022 Dates

Advertisement

Also Read How to Buy & Sell Sovereign Gold Bond in Zerodha?

S. No.TrancheDate of SubscriptionDate of Issuance
1.2022-23- Series IJune 20 – June 24, 2022June 28, 2022
2.2022-23 Series IIAugust 22 – August 26, 2022August 30, 2022

Also Read Loan against Sovereign Gold Bond | SBI | ICICI | HDFC | Interest Rate | Eligibility

FAQs

Is tax applicable on Sovereign gold bonds?

Capital gain is exempted if held till maturity but the interest earned will be taxed as per the income tax act.

Is there GST on Sovereign gold bonds?

There is no GST charged on SGBs.

Can I sell SGB before 5 years?

Yes, you can sell SGB anytime after a date notified by RBI if held in Demat form.

Is SGB tax-free?

Not Completely tax-free but depending on the situation you may refer to the above example to understand better.

How do I redeem SGB?

As per RBI guidelines following procedure an investor can follow for redemption:

The investor is advised to contact one month before maturity regarding the ensuing maturity of the bond.
On the date of maturity, the maturity proceeds will be credited to the bank account as per the details on record.
In case there are changes in any details, such as account number, or email ids, then the investor must intimate the bank/SHCIL/PO promptly.

Can I convert SGB to physical gold?

No, you cannot convert SGB to physical gold. Once you receive the proceed on redemption you can purchase gold with that amount.

Where does it show SGB interest in ITR?

Interest on SGB is taxable under the head Income from other sources.
The taxpayer should report the interest under Schedule OS in the Income Tax Return.

Also Read Loan against Sovereign Gold Bond | SBI | ICICI | HDFC | Interest Rate | EligibilityETF vs Gold Bond

Advertisement
Advertisement