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From April 1, the tax-free benefit for SGBs is now reserved exclusively for original subscribers who stay invested till the end.
Sovereign Gold Bonds (SGBs) Taxability.
The Union Budget 2026 has quietly but decisively tightened the tax rules around Sovereign Gold Bonds (SGBs). While the government has not removed the popular tax-free maturity benefit altogether, it has clearly defined who gets it. For many investors, especially those buying SGBs from the secondary market, this change alters the tax outcome quite meaningfully.
Here’s a simple, no-jargon explainer of what has changed and what it means for you.
What are Sovereign Gold Bonds?
Sovereign Gold Bonds are government-backed securities that allow investors to take exposure to gold without buying physical metal. They are issued by the Reserve Bank of India on behalf of the Government of India.
The price of an SGB moves in line with gold prices. On top of that, investors earn a fixed interest of 2.5 per cent per annum, paid every six months. The bonds have an eight-year maturity, with an option to exit after five years on interest payment dates. SGBs can also be traded on stock exchanges, just like shares.
What was the tax rule till now?
Until now, the tax treatment of SGBs was straightforward and attractive. If an investor held the bond until maturity and redeemed it with the RBI, any capital gains were fully exempt from tax, irrespective of whether the bond was bought at the original issue or later from the market.
This made SGBs one of the most tax-efficient ways to invest in gold.
What has changed in Budget 2026?
The Budget 2026 has proposed to amend the income tax law to clearly restrict this tax exemption.
From April 1, 2026, the capital gains tax exemption on redemption will apply only if two conditions are met together. First, the SGB must have been purchased by the individual at the time of original issue from the RBI. Second, the same investor must hold the bond continuously until maturity.
In simple terms, the tax-free benefit is now reserved exclusively for original subscribers who stay invested till the end.
The amendment is proposed to take effect from April 1, 2026, and will apply to assessment year 2026–27 and subsequent tax years.
What happens if you buy SGBs from the stock market?
This is where the real impact lies.
If you buy an SGB from the secondary market, say on the stock exchange, and later redeem it at maturity, you may no longer qualify for the capital gains tax exemption. Any gains in such cases will be taxed according to applicable capital gains rules.
So while secondary market SGBs still offer gold exposure and interest income, they lose a key tax advantage at maturity.
Why did the government make this change?
The government says the amendment is meant to remove ambiguity and ensure uniform application of the law across all SGB tranches. Over the years, SGBs have been issued in multiple batches, and there was confusion about whether tax exemption applied to all holders or only original investors.
By explicitly linking the exemption to original subscription and continuous holding, the government is closing loopholes and preventing misuse of the tax benefit.
Does this affect interest income on SGBs?
No. The 2.5 per cent annual interest earned on SGBs remains taxable as “income from other sources”, just as before. Budget 2026 has not changed this aspect.
Should investors stop buying SGBs from the secondary market?
Not necessarily. Secondary market SGBs can still make sense if they are available at a discount to the prevailing gold price. However, investors must now factor in the possible capital gains tax at redemption while calculating returns.
For long-term, tax-efficient gold exposure, participating in fresh SGB issues directly from the RBI becomes far more important under the new rules.
Budget 2026 has not taken away the tax-free maturity benefit on Sovereign Gold Bonds, but it has narrowed the eligibility. Going forward, only investors who buy SGBs at original issue and hold them till maturity will enjoy tax-free redemption.
If you already own SGBs or plan to invest in them, knowing how and where you buy them now matters as much as the gold price itself.
February 02, 2026, 08:41 IST
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