Synopsis: This article explains the major revisions made in the taxation of Sovereign Gold Bonds capital gains, why these changes were made, and from when they’ll be effective.
Sovereign Gold Bonds (SGBs) are issued by the Reserve Bank of India (RBI) on behalf of the government to provide investors with an instrument that gives exposure to gold prices while gaining a fixed interest of 2.5% a year, along with tax benefits.
However, the government has introduced major changes to the taxation of SGBs in Budget 2026. These changes to tax provisions will take effect in FY2027, which starts on April 1, 2026.
What Changed in Budget 2026
Previously, capital gains from the redemption of SGBs on maturity were exempt from tax under Section 70(1)(x). This benefit applied to all investors regardless of how they acquired the bonds.
Whether the bond was subscribed at its original issue or bought later from the secondary market, it did not matter. As long as the bond was held till maturity and redeemed, investors were allowed to claim this benefit on the capital gains earned. In the Union Budget 2026, the following revisions were brought into the taxation of SGBs:
- The tax exemption that was previously available on redemption will now be available only for investors subscribed to the SGB at the time of its original issuance by the RBI.
- Additionally, the investor must continuously hold the original issue bond until its maturity to qualify for this exemption.
- This implies that if an investor buys SGBs from the secondary market or transfers them and then holds them until maturity, then the capital gains exemption can be claimed. Instead, those gains will be taxable according to the capital gains provisions of the Act.
- Furthermore, the bond will not qualify for the exemption if it is redeemed before maturity, even if it’s an original subscriber.
Also Read: Gold or Silver: Which Metal Works Best for Long-Term Investors?
Why This Change Was Made
This move is to stop short-term trading and arbitrage opportunities involving SGBs. For a while, as capital gains on SGBs purchased from the secondary market were also enjoying tax exemption, premature redemption of these bonds increased among investors. This was not aligned with the scheme’s motive of promoting long-term investment.
The revisions introduced in the Budget 2026 aim to nudge original subscribers to hold the bonds till maturity to gain tax benefits. This move will also ensure that investors do not exploit price differentials in the secondary market to earn tax-free gains.
Effective Date
The updated taxation provisions for SGBs will come into effect from April 1, 2026, which is the beginning of Financial Year 2026-27 or Assessment Year 2027-28.
Conclusion
The changes in Budget 2026 cut back on the tax benefits for SGBs. Original subscribers who hold SGBs until maturity still receive tax-free capital gains. However, investors who buy bonds from the secondary market or choose early redemption will now have to pay taxes. Because of this, SGBs will likely appeal more to long-term investors who plan to hold them. Those in the secondary market will need to reconsider their returns after taxes before investing.
FAQs
The 2.5% annual interest rate on SGBs is fully taxable. There are no revisions on it. It is taxed under “Income and Other Sources” and is added to the investor’s total annual income and taxed based on the income tax slab.
Yes. The capital gains tax is applied uniformly across all the SGB series issued by the RBI under certain conditions.
Written by Nila Maria Jacob
