Sovereign Gold Bond 2023-24 tranche III: Here's how SGBs are taxed

The Centre has recently launched the third series of Sovereign Gold Bonds (SGBs), which is pitched as a lucrative alternative to buying physical gold, for this financial year. The Sovereign Gold Bond Series 2023-24 Series III subscription period opened on December 18 and will close on December 22, 2023. Therefore, the date of issuance in SGB Series III is December 28, 2023.

This is the third tranche this fiscal 2023-24. The first series was launched in June 2023 and the second one was floated in September 2023.

After the December series, the SGB Series 2023-24 Series IV subscription period will be open from February 12 till February 16, 2024. The date of issuance in SGB Series III is February 21, 2024.

The SGBs are denominated in grams of gold multiples, with a fundamental unit of one gram. The tenor of the SGB is eight years and investors do have an option for premature redemption after the fifth year, which can be availed of on the date interest is payable.

In a notification issued on December 15, 2023, the Reserve Bank of India (RBI) said: “The nominal value of the bond based on the simple average of closing price [published by the India Bullion and Jewellers Association Ltd (IBJA)] for gold of 999 purity of the last three working days of the week preceding the subscription period, i.e. December 13, December 14, and December 15, 2023 works out to Rs 6,199/- (Rupees Six thousand one hundred and ninety nine only) per gram of gold.”

Should you invest in Sovereign Gold Bonds?

SGBs offer a new opportunity for investors who are hopeful of benefiting from gold’s strong performance as a safe-haven investment. The SGBs are denominated in multiples of a gram(s) of gold, making them an accessible way for many individuals to invest in the yellow metal. But investing your money, investors need to be aware of the structure of SGBs and how are they taxed.

Sovereign Gold Bonds have a unique tax advantage over other forms of gold. The interest on SGBs is taxable under the provisions of the Income Tax Act of 1961 (43 of 1961). The interest income is taxed according to the investor’s tax bracket. However, if the SGBs are held until maturity, i.e. 8 years, the final amount is exempted from taxation.

SGBs offer interest at 2.5 per cent per annum, payable semi-annually, which is taxable as per the individual’s tax slab. TDS is not applicable.

This implies that if the investors withdraw the investment after 5 years, the amount is taxable. If the gold bonds are sold before maturity, the amount earned will be taxed as a capital gain.

“From a tax perspective, Sovereign Gold Bonds are relatively more tax-efficient compared to physical gold. Investors in SGBs also stand to benefit when the market price of gold rises, contributing to potential capital appreciation. However, it’s important to note that SGBs have a lock-in period of 5 years, limiting immediate liquidity,” said Abhijit Roy, CEO, GoldenPi.

Suresh Surana, Founder of RSM India, said, “Any gains arising sovereign gold bonds before their maturity would be taxable as long-term capital gains at 20 per cent (without Indexation benefit) or 10 per cent (with Indexation Benefit).”

SGB returns vs gold investement

The return on maturity of the SGB 2015-16 Series I of 12.9 per cent is better when compared to other gold investments, such as physical gold, gold ETF and others.

Holding gold ETF (Exchange Traded Funds) for eight years (the tenure for SGBs) have fetched 10.9 per cent whereas gold futures on the Multi Commodity Exchange (MCX) appreciated 11.8 per cent.

“For the 8-year tenure, Sovereign Gold Bonds delivered a splendid CAGR of around 10.8 per cent with an annual interest rate of 2.5 per cent. This is a testimony to the fact that SGBs are here to stay and deliver stellar returns in the future. With a plethora of benefits like hassle-free storage compared to physical gold, the annual fixed interest of 2.50 per cent payable semi-annually, and scheme value being linked to market price. Being a government-backed investment, it promises security along with other advantages like the flexibility of being tradable in stock exchanges and exemption from capital gains tax, making it a well-preferred investment choice, especially for risk-averse investors who look out for investments that carry minimum risk and give stable returns,” said Colin Shah, MD, Kama Jewelry.

Where can you buy SGBs?

The SGBs are sold through Scheduled Commercial banks (except Small Finance Banks, Payment Banks and Regional Rural Banks), Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, and recognised stock exchanges, viz., National Stock Exchange of India Limited and Bombay Stock Exchange Limited.

Investment limits

The SGBs can be bought by resident individuals, HUFs, Trusts, Universities, and Charitable Institutions. As per RBI rules, the maximum subscription limit each fiscal year (April-March) must be 4 kg for individuals, 4 kg for HUF, and 20 kg for trusts and similar companies, as specified by the Centre.

The bonds are denominated in grams of gold multiples, with a minimum investment of one gram.

Investors can invest in SGB by visiting the bank branch or designated post office by filling out the form with units and other details. The forms can be invested in the banks or post offices with a cheque or demand draft with a copy of the PAN card and Aadhaar card.

Also read: Sovereign Gold Bond 2023-24: SGB Series III opens today, here is what you need to know

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