SGB redemption: Investors in the Sovereign Gold Bond (SGB) 2017-18 Series X, issued at Rs 2,961 per gram on December 4, 2017, can get 158% return on their investment. The Reserve Bank of India (RBI) has set the premature redemption price at Rs 7,646 per unit, based on gold prices with 999 purity.
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SGBs or Sovereign Gold Bonds
Sovereign Gold Bonds (SGBs) are government securities that are denominated in grams of gold, providing an alternative investment option to owning physical gold assets. When investors purchase SGBs, they are essentially acquiring a bond that represents a specific amount of gold, which is held for a duration of eight years. This allows for the value of the gold to appreciate over time without the need for physical storage.
The term of Sovereign Gold Bonds (SGB) is eight years, with the option to redeem the bonds early after a minimum of five years, but only on the next scheduled interest payment date, as per RBI regulations.
This time, the redemption price is determined by taking the simple average of the closing gold prices for the three business days leading up to the redemption date – November 29, December 2, and December 3, 2024 – as reported by the India Bullion and Jewellers Association Ltd. (IBJA).
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Redemption process
Bondholders have the option to choose early redemption of this tranche on December 4, 2024, subject to certain conditions:
> Redemption can only be requested after five years from the issuance date.
> The redemption date must coincide with an interest payment schedule, specifically on December 4, 2024.
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Redemption process and taxation
Individual investors benefit from tax exemption on redemption proceeds. According to Section 47(vii) of the Income Tax Act, the redemption of Sovereign Gold Bonds (SGB) by an individual with the Reserve Bank of India is not considered a transfer and therefore does not result in any capital gains for the individual. This exemption applies to both bonds redeemed on maturity and those tendered for early redemption after five years, regardless of whether the bonds were originally subscribed to or purchased from the open market.
However, if SGBs are sold on a stock exchange or transferred privately, any profits will be subject to capital gains tax. The tax rate will depend on the holding period, with profits taxed at the individual’s slab rate if the bonds are sold within one year and at a rate of 12.50% if sold after one year.
The profits obtained from redeeming SGB are not considered income since they are not generated from a transfer. Thus, there is no requirement to include this transaction in your ITR.
For added caution, you may choose to specify the profit amount from redemption in the Exempt Income (EI) section of your ITR. However, it is important to note that this profit should not be classified as income in the initial instance.
