Sovereign gold bonds' (SGBs) subscription for the last tranche for the financial year 2023-24 is all set to open on February 12 and close on February 16. The issue price for the current tranche has been set at Rs 6,263 per gram as compared to Rs 6,199 per gram in the third tranche in December 2023.
Sovereign gold bonds or SGBs are government securities that are a secure form of investment. They are valued in terms of grams of gold. SGBs have gained popularity among investors as an alternative to physical gold. These bonds have outperformed physical gold and gold exchange traded funds (ETFs), making them a viable option for individuals looking to earn tax-free returns.
The last tranche, Sovereign Gold Bond Series 2023-24 Series III, subscription period opened on December 18 and closed on December 22, 2023. The date of issuance in SGB Series III was December 28, 2023. Before that two more tranches were floated in June 2023 and September 2023.
Tranche Date of Subscription Date of Issuance Issue price2023-24 Series I June 19 - June 23, 2023 June 27, 2023 Rs 5,926 per gram2023-24 Series II Sep 11-Sep15, 2023 September 20, 2023 Rs 5,923 per gram2023-24 Series III Dec18 – Dec 22, 2023 December 28, 2023 Rs 6,199 per gram2023-24 Series IV Feb 12 – Feb 16, 2024 February 21, 2024 Rs 6,213 per gram
To buy an SGB, one can choose multiple ways. The SGBs will be sold through Scheduled Commercial banks, Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, and recognised stock exchanges -- National Stock Exchange of India Limited and Bombay Stock Exchange Limited. One can also contact a SEBI-authorised agent or broker.
How are SGBs taxed?
The SGBs are issued in multiples of grams of gold, with the basic unit being one gram. The duration of the SGB is eight years, and investors have the choice to redeem it early after the fifth year, which can be done on the interest payment date.
The interest earned from Sovereign Gold Bonds is subject to taxation as per the regulations of the IT Act, 1961. However, when an individual redeems the SGB, they are exempted from paying capital gains tax. Additionally, investors enjoy indexation benefits on long-term capital gains, whether they choose to transfer the bond to another person or not.
"The Sovereign Gold Bonds (SGB) scheme was introduced as a substitute for physical gold. When the scheme is launched, investors buy these bonds and redeem them when they mature. SGBs typically have an 8-year maturity period, with exit options available beginning in the fifth year. When investors redeem gold bonds through the SGB route, they receive tax benefits. However, if investors sell their SGBs on the secondary market, their capital gains will be taxed at the current market rate. Interest earned on SGBs is taxed at the individual's applicable tax rate, similar to standard interest earnings. Additionally, investors who subscribe online and use digital payment methods will receive SGBs at a Rs 50 per gram discount from the issue price," said Abhijit Roy, CEO, GoldenPi.
Sovereign gold bond returns can be categorised into two types: capital gains obtained upon bond maturity and semi-annual interest earnings. Investors receive a fixed interest rate of 2.5% per year, which is paid out twice a year based on the nominal value of their investment. This results in an effective interest rate of 1.25% for each payment, and the amount is subject to taxation based on the investor's income tax bracket.
Investors who hold the bond for the entire term (8 years) are exempted from long-term capital gains tax. However, the periodic interest income is subject to taxation under the category of 'Income from other sources' and is taxed according to the income tax slabs set by the central government.
"SGBs, as opposed to gold ETFs, provide a fixed 2.5% annual interest income, which boosts overall returns, serves as a consistent source of income, and yields nearly 9%-12% over 8 years. Another significant benefit that may result in higher after-tax returns for SGB holders is the capital gains tax exemption at maturity. The government guarantee on the principal investment provides even more security, potentially outperforming gold exchange-traded funds," Roy added.
In the case of resale, if investors decide to sell the bonds before the completion of 3 years, they would have to short-term capital gains on total profits, at rates as per the annual income of investors. Whereas, long-term capital gains, on the other hand, would attract tax at 20% of the total earnings, after adjusting the same for indexation.
Also read: Sovereign Gold Bond Scheme 2023-24 – Series IV price fixed at Rs 6,263/gm; issues opens on Feb 12
Also read: Sovereign Gold Bond 2023-24 Series IV to open on Feb 12. Here are the details