Sovereign Gold Bonds (SGBs) are financial instruments supported by the government and issued by the Reserve Bank of India (RBI). These bonds were introduced in November 2015 and have been made available to the public through 67 distinct issuances.
SGBs are designed as investments spanning eight years, with a compulsory lock-in period of five years. Despite being listed on stock exchanges, they typically exhibit minimal trading activity. Nonetheless, the RBI permits investors to apply for the repurchase of their SGBs at the culmination of the fifth, sixth, and seventh years. Shareholders are empowered to initiate their redemption procedure within specified timeframes through Receiving Offices, NSDL, CDSL, or RBI Retail Direct.
September redemption
In the month of September, Sovereign Gold Bonds 2016-17 Series-II will go for final redemption. The SGB tranche 2016-17 Series-II opened for subscriptions on September 1 and continued till September 9, 2016.
The issuance of the bonds was initially scheduled for September 23, 2016, but was later postponed to September 30, 2016. The designated price for the bonds was finalised at Rs 3,150, and the anticipated date for redemption is slated for the final week of September in the year 2024.
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SGB premature redemption
Though SGB has a tenor of 8 years, the central bank allows premature redemption on coupon payment dates following the 5th year from the issue date. This early redemption is determined by the average gold price of the previous week, as published by the India Bullion and Jewelers Association Limited (IBJA). The Reserve Bank of India (RBI) will open specified windows at the conclusion of the 5th, 6th, and 7th years, enabling investors to redeem their SGBs early.
It is noteworthy that the RBI has supervised 61 premature redemptions for SGBs that reached their fifth, sixth, and seventh years, with an average of 17,000 units redeemed. Interestingly, there was a variation in the number of units surrendered for SGBs completing the fifth, sixth, and seventh years, with the highest surrender observed in SGBs completing the seventh year.
The RBI recently published a timetable for the premature redemption of the Sovereign Gold Bonds (SGBs) released between May 2017 and March 2020. The RBI’s plan includes the redemption of 30 SGBs between October 11, 2024, and March 1, 2025. As per the RBI’s regulations, holders of SGBs have the option to request early redemption of their gold bonds following a five-year holding period from the date of issuance. It’s imperative for investors to comply with the specified submission windows as the redemption dates are subject to change in the event of unplanned holidays.
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“In terms of the Consolidated Procedural Guidelines on the SGB Scheme issued by the RBI, premature redemption of the gold bonds is permitted after five years from the date of issue of such bonds,” the RBI said.
“It may, however, be noted that the above-mentioned dates may undergo a change in case of unscheduled holiday/s. Investors are advised to take note of the period for submission of requests for redemption of SGB, in case they choose to redeem their holdings before maturity,” said RBI in its statement.
SGB tax treatment after Union Budget 2024
If an individual retains their sovereign gold bonds until maturity, they will not be subject to capital gains tax upon redemption. The Income Tax Act specifically exempts gains on redemption for individuals holding these bonds, making the gains tax-free. The Act also grants individuals an exemption upon redemption or maturity of SGBs by the RBI, as they are not considered a transfer and thus not liable for capital gains tax. Consequently, premature redemption through the RBI within specified time frames does not incur capital gains tax for individuals.
SGBs are subject to capital gains tax if sold in the secondary market before maturity. The tax rate depends on the period of holding. According to current regulations, if an SGB is held for over 12 months, the capital gains are classified as long-term and taxed at a rate of 12.5%, without the benefit of indexation. Otherwise, if the holding period is less than 12 months, the gains are considered short-term and taxed at the applicable slab rates.
