The Union budget for FY27 proposes to withdraw the capital gains tax exemption on sovereign gold bonds (SGBs) for investors who buy them from the secondary market, limiting the benefit only to the original subscribers. The move changes the post-tax returns for a large pool of investors, especially since the government has not been making fresh issuances of these bonds and most trading now happens in the secondary market.
The change effectively ends the tax-free status for secondary buyers or those who purchase these bonds from the stock exchange or from other investors after the initial allotment.
Starting 1 April 2026, the capital gains exemption at the time of redemption will be available only to investors who have bought the gold bonds directly during the primary issuance and hold them continuously until maturity.
“A primary buyer is someone who subscribes to the bond during the original RBI (Reserve Bank of India) window via banks, post offices, or online platforms. A secondary buyer picks up the bond later from the market,” explained Himank Singla, partner at SBHS & Associates.
This is a proposed amendment to section 70(1)(x) of the Income Tax Act, and it means that only the primary buyer who does not transfer the bond at any stage will continue to enjoy full exemption from capital gains tax on redemption by the RBI, Singla added.
“Exemption on capital gains on SGBs was available to both primary and secondary buyers if held till maturity. The benefit has been removed for secondary buyers,” Harshal Bhuta, partner at P. R. Bhuta & Co. CAs, noted.
What it means for investors
If the investor holds the bonds for over 24 months, the gains will be taxed at 12.5% with the benefit of indexation. While, if it was held for 24 months or less, the gains will be taxed at the investor’s applicable income tax slab rates.
“Notably, the 2.5% annual interest paid on SGBs remains fully taxable for all categories of holders, as per existing laws,” added Singla.
“The government is no longer issuing SGBs, and so people are largely buying SGBs in the secondary market. Till now, there was no tax (capital gains) if the bonds were held to maturity. But given the performance of gold prices and unhedged liability that it may have created for the government, capital gains tax has been introduced for secondary buyers even if SGBs are held to maturity,” said Amit Maheshwari, managing partner with AKM Global.
This is a dampener for investors who would have bought these gold bonds in the secondary market and will now have to pay long-term capital gains at 12.5% and short-term capital gains at slab rates, Maheshwari added.
Since these bonds are redeemed at the prevailing gold prices, the relentless surge in the precious metal has pushed up payouts on sovereign gold bonds, raising fiscal concerns.
Gold prices have zoomed over 100% in the last one year and 242% over the last five years.