The Reserve Bank of India (RBI) has just announced a 20-day window for the premature redemption of Sovereign Gold Bonds (SGBs).

This limited-time opportunity enables eligible bondholders to redeem their SGBs before maturity, providing flexibility for those who may require liquidity or wish to take advantage of current gold prices.

In this blog, we’ll explore:

🔹 What exactly is the premature redemption window?

🔹 Which SGBs qualify for redemption during this period?

Let’s dive into the details of this important update from the RBI!

What Are Sovereign Gold Bonds (SGBs)?

Sovereign Gold Bonds (SGBs) are government-backed securities that allow individuals to invest in gold without physically holding it.

These bonds represent units of gold, and investors benefit from price appreciation without the risks associated with storing and securing physical gold.

Below is a summary of the key features of SGBs.👇

Investment tenure of SGBs:

• Maturity Period: SGBs have a maturity period of 8 years.

• Early Redemption: Investors can redeem their bonds early, starting from the 5th year, on specific interest payment dates.

• Trading: SGBs can be traded on stock exchanges, making them a flexible investment option.

What Has the Reserve Bank of India Announced?

The RBI has announced a 20-day window for premature redemption of SGBs issued between 2017 and 2020.

Investors holding these bonds can redeem them before the 8-year maturity period but only after completing 5 years.

The RBI will determine the redemption price based on the average gold prices leading up to the redemption date.

This window allows investors to exit their investments earlier if they choose to.

Here is a list of SGBs available for early redemption starting in October.👇

Eligibility for Premature Redemption

Not all SGBs are eligible for premature redemption.

Only those issued between 2017 and 2020 can be redeemed during this 20-day window.

It’s important to note that this window is part of the SGB scheme and not a one-time special provision.

Taxation of Sovereign Gold Bonds

SGBs provide income from three primary sources, each taxed differently.

1. Interest Income

SGBs pay interest semi-annually, which is added to the investor’s total income and taxed according to their income tax bracket.

2. Redemption Income

When an investor redeems an SGB after the 5th year, any gains from the difference between the purchase price and the redemption price are tax-exempt.

For example, if you purchased an SGB for Rs. 5,000 and redeemed it for Rs. 6,000, the Rs. 1,000 gain would be tax-free.

This is a key advantage compared to physical gold, where gains are usually taxed.

3. Income from Sales in the Secondary Market

SGBs are tradable on stock exchanges, and any capital gains from selling SGBs in the secondary market are subject to taxation.

The tax treatment of these gains depends on how long the bond has been held:

• Short-term capital gains (STCG): If sold before 3 years, profits are taxed as per the investor’s income tax slab.
• Long-term capital gains (LTCG): If held for more than 3 years, gains are taxed at 20% with the benefit of indexation.

See the table below for information on how SGB capital gains are taxed 👇

Conclusion

The RBI’s recent announcement allows investors to redeem Sovereign Gold Bonds early, potentially benefiting from current gold prices.

SGBs remain a viable option for individuals looking to invest in gold without handling the physical asset.

They offer both flexibility and favourable tax treatment.

However, it’s important to review your investment objectives and tax implications before making any decisions regarding the early redemption of SGBs.

*Disclaimer – This is for information purposes only and not investment advice. Data credit to the rightful source.