From April 1, 2026, the long-standing capital gains tax exemption on SGBs redeemed at maturity will apply only to those who subscribe at primary issuance by the RBI and hold till maturity.
Investors who buy SGBs from the secondary market will no longer get tax-free redemption, even if they hold the bonds to maturity.
Gains on secondary-market purchases will now be taxed at the investor’s slab rate if sold within 12 months, and at 12.5% (without indexation) if held longer than a year. Sales before maturity on exchanges remain taxable as earlier.
Why the rules were changed?
According to Chintan Haria, Principal – Investment Strategy, ICICI Prudential AMC, the tweak removes what policymakers saw as an unintended tax arbitrage.
“Secondary-market buyers could purchase SGBs at a discount and still enjoy tax-free maturity gains. That outcome was inconsistent with the original design of the scheme,” Haria said.
He added that the change reorients incentives toward primary issuances by the RBI and reinforces the original aim of SGBs — reducing demand for physical gold by offering a long-term sovereign alternative.
Why SGB prices fell sharply
In the days after the Budget, many listed SGB series dropped 8–10%, even as MCX gold corrected only about 2.5–3%.
Haria said this gap shows that the sell-off was largely tax-driven rather than metal-driven.
“The core trigger was a sudden tax reset. Because SGBs trade in relatively thin markets, liquidity stress amplified the fall as investors rushed to exit,” he said.
He expects prices to stabilise once investors complete their tax calculations and trading normalises, after which SGBs should again track gold more closely.
What should investors do now?
With the secondary-market tax benefit gone, the choice of gold vehicle matters more than before.
Investors can still choose among SGBs, Gold ETFs, Gold Fund of Funds (FoFs), and physical gold — but the risk–return profile of each has shifted.
While SGBs offer a 2.5% annual interest (taxable) and no expense ratio, their low trading liquidity and wider bid–ask spreads can hurt realised returns if sold before maturity.
By contrast, Gold ETFs and FoFs tend to offer:
- Higher liquidity and tighter spreads
- Easier entry and exit without an eight-year lock-in
- Professional vaulting of high-purity gold
- Smaller ticket sizes (typically 0.01 gm per ETF unit)
- Simpler tax reporting (no annual interest income)
- SIP option via FoFs and no need for a demat account for FoFs
“ETFs and FoFs charge an expense ratio, but for many investors, liquidity, flexibility, and operational simplicity may outweigh that cost,” Haria said.