I invested in sovereign gold bonds (SGBs) in FY16 and received the maturity proceeds in FY24. According to the terms, the proceeds are exempt from long-term capital gains tax if redeemed on maturity. My question is: Am I required to declare my earnings from these bonds in my ITR2 for AY25? If so, where? I do not find any provision in Schedule Capital Gains in the ITR2 return.
- Praveen Godbole
SGBs are government securities issued by the Reserve Bank of India, and are denominated in grams of gold. Capital gains arising on redemption of the bonds on maturity would be considered as an exempt transfer under section 47(viic) of the Income Tax Act, 1961 and hence, not liable to tax.
While HUFs, trusts, universities and charitable institutions are also eligible to invest in these bonds, exemption from capital gains can be availed only by an individual.
While the tenor of the bonds is eight years, they can be redeemed after the fifth year. The exemption provision does not distinguish between redemption on maturity and premature redemption. Therefore, one may be able to take a view that capital gains arising on redemption of the bonds, irrespective of whether on maturity, or a premature redemption, would be exempt from tax.
You should disclose such exempt gains under 'other exempt income' in Schedule EI of your income tax return. In the utility drop down, select 'any other' as the nature of income, and provide a description.
Note: not all capital gains from the transfer of the bonds is exempt from tax. These bonds can also be traded on a recognised stock exchange. Capital gains arising on sale of the bonds to another investor would be taxable.
If the bonds are held for more than 12 months, the investor will be able to claim the benefit of indexation of the cost of acquisition for computing long-term taxable capital gains.
Such long-term capital gains would be taxable at 20% plus applicable surcharge and education cess after considering the indexation, or 10% plus applicable surcharge and education cess without indexation, whichever is more beneficial.
If the bonds sold to another investor, are held for 12 months or less, short-term capital gains on the sale will be taxable at the rate applicable to the investor.
The taxable gains have to be be disclosed in the return of income in Schedule CG, dealing with capital gains.
In addition to the increase in the value of the bonds in line with the price of gold, an investor also receives interest on the initial issue price of the bonds, twice a year. Furthermore, in case of redemption, interest is paid to the investor along with the maturity amount.
Interest on these bonds, including amounts received upon redemption, is taxable as 'Income from other sources. You should disclose this interest in Schedule OS of your income tax return.
Mahesh Nayak is director at CNK & Associates LLP
— If you have a personal finance query, write to us at mintmoney@livemint.com to get it answered from experts
First Published:
30 Jun 2024, 11:48 AM IST
Business NewsMoneyUnderstanding sovereign gold bonds: Tax implications and disclosure requirements
FAQs
If the price of gold falls, then investors face some capital loss. As Sovereign Gold Bond investment comes with a stipulated lock-in period, this investment potentially lacks liquidity. While the interest income generated by SGBs is taxable, the redemption amount on maturity is not.
Which bank is best to buy sovereign gold bond? ›
Various investment platforms offering options to invest in SGB. Investing in Sovereign Gold Bonds is easily accessible through designated banks such as SBI and HDFC Bank. Interested individuals can apply for these bonds via the respective bank's website under the 'Investment' tab.
How do I withdraw my sovereign gold bond before maturity? ›
In case of premature redemption, investors can approach the concerned bank/SHCIL offices/Post Office/agent thirty days before the coupon payment date. Request for premature redemption can only be entertained if the investor approaches the concerned bank/post office at least one day before the coupon payment date.
What is the price of Sovereign gold bond in 2024? ›
The close prices for these bonds as of August 14, 2024, range between ₹7,431 and ₹7,930, underscoring the robust demand for SGBs.
Why is SGB not a good investment? ›
Capital Loss
Your investment in SGB can result in a capital loss as the bond value is directly linked to the price of gold in the international markets. If the price at which you buy the bond is higher than the price at which you redeem it at maturity, you might end up in a loss.
What are the safest sovereign bonds? ›
Types of Sovereign Debt
Bonds issued by developed economies, such as Germany, Switzerland, or Canada, usually carry very high credit ratings. 12 They are considered extremely safe and offer relatively low yields.
What happens to SGB after 8 years? ›
What happens when I invest for 8 years in a sovereign gold bond? After 8 years, the SGBs mature, and the interest and redemption proceeds will be credited to the bank account. You will be informed about its maturity status one month before the maturity date.
What is the average return on sovereign gold bonds? ›
Average annual return: Over the past eight years, SGBs have yielded an average annual return of approximately 13.7%. This comprises the assured 2.5% interest income along with capital appreciation linked to fluctuations in gold prices.
Will I get 2.5% interest if I buy SGB from secondary market? ›
But how much interest is received when you buy SGB from the secondary market? You will still get 2.5 percent interest if you buy SGBs from the exchange. But the interest will be calculated on the original issue price and not your purchase price.
Is SGB going to be discontinued? ›
The Government of India may discontinue the sale of Sovereign Gold Bonds (SGB) as they are considered an “expensive and complex” instrument, CNBC-TV18 reported on Thursday, August 22, quoting government sources.
Gold returns of last year stood at 11.71 per cent return, and five years' returns at 14.57 per cent as of March 26, 2024. Retail investors shouldn't allocate more than 10 per cent of their portfolio in gold due to its paltry returns of 7.43 per cent in 10 years.
Is SGB better than FD? ›
Conclusion. SGBs and FDs both provide customers with low-risk alternative investments but operate differently. FDs offer lower returns as compared to SGBs but have the benefit of stability. If you are looking for fixed returns with higher LTV ratios, FDs are your best bet.
What are the downsides of SGB? ›
Lack of Liquidity
SGBs have a fixed maturity period, and liquidity can be a challenge if you need to sell them before maturity. You may have to rely on the secondary market, which can have varying prices.
Is there a downside to investing in gold? ›
What Are the Risks of Investing in Gold? There are several risks to investing in gold, including as follows: Price volatility: The price of gold can be volatile, and it may fluctuate significantly over short periods.
Is gold Sovereign a good investment? ›
The coin is in mint condition because it has never been circulated and has just been stored in a bag for a hundred years. Not many other historical objects can be preserved in the same way and be in such a mint state after a long period of time. Gold sovereigns are the best investment option when it comes to gold.
What are the cons of sovereign wealth funds? ›
To protect their assets for the long term, some countries invest resources and wealth into sovereign wealth funds, which manage a diversified portfolio. But without adequate transparency requirements, these vehicles can be ripe for corruption and other governance risks.
