The Sovereign Gold Bonds (or SGBs or simply Gold Bonds in India) are one of the best ways to invest in gold in a non-physical and digital form.
Issued by the RBI on behalf of the government of India, these bonds not only offer the benefit of potential appreciation in gold prices but also offer a fixed interest of 2.5% on the invested amount to the investors. This interest income which is paid semi-annually, is unique to gold bonds alone amount all available gold investment options around the world and not just in India.
Any gains from gold investments are treated as capital gains. And hence, these are taxed. If you invest in gold bonds or are already invested in them, then it is important to know how capital gains on selling gold bonds are taxed. Isn’t it?
As per the current income tax laws, the taxation on gold broadly depends on how long you have held the gold. So the capital gains arising from the sale of gold can either be short-term or long-term depending on the time period for which the gold has been held, i.e. between buying and selling.
Taxation of Sovereign Gold Bonds (SGB: 2023)
Sovereign Gold Bonds (SGBs) are issued by RBI on behalf of the Government of India. Basically, these are government securities denominated in grams of gold and act as substitutes for holding actual physical gold. This is the only form of gold where you also get some regular interest (2.5% per annum paid semi-annually) in addition to the potential for capital gains later. The interest on gold bonds is credited semi-annually to the bank account of the investor.
These SGBs have a maturity period of 8 years, with an exit option from the 5th year onwards. But sovereign gold bonds can also be traded on stock exchanges within a fortnight of issuance, offering an early exit option for investors.
The taxation of Sovereign Gold Bond hence has various aspects.
So let’s see the tax on selling gold bonds in India:
Taxation of Interest income from Sovereign Gold Bonds (2023)
The interest income is taxable as per the tax rate applicable for the investor’s income tax slab. The interest income is added to your total income under the head of “Income from Other Sources” and taxed as per the marginal slab rate accordingly. Plain and simple.
So if you are in the 20% or 30% tax bracket, then you will end up paying 20% or 30% tax on your interest receipt from gold bonds respectively.
But do note that there wouldn’t be any tax deducted at source (TDS) on the interest paid. So the liability of paying tax on interest from gold bonds is on the gold bond buyer himself.
Taxation of Capital Gains from Sovereign Gold Bonds (2023)
- In case you buy gold bonds and hold them till maturity (which is 8 years), then the capital gains will be tax-free. This is a special tax benefit that has been offered by the government only to gold bond investors to make the tax bonds more attractive and encourage people to shift from physical gold to non-physical forms of gold.
- You can even redeem gold bonds before maturity and after completion of the 5th year. The capital gains generated at early redemption after the 5th and up to the 8th year are taxed at 20% post indexation.
- SGBs are allowed to be sold (traded) on the stock exchange even before the 5th So any gains or losses arising from the sale of SGB will be considered as a capital gain (or loss). But even on selling on exchanges, the time of holding will be considered. So if you sell the Gold bond on exchange within 3 years, then it will be short-term capital gains taxed as per the income tax slab. But if you sell the gold bonds after 3 years but before maturity, then it will be long-term capital gains and taxed at 20% with indexation.
Now, let’s have a brief look at how to calculate capital gain on the sale of gold in general.
Example of Short Term Capital Gains on Gold
Suppose you purchased gold worth Rs 10 lakh on 14th May 2020 and sold the same for Rs 14 lakh on 14th February 2022. Now you have earned a profit of Rs 3 lakh on the sale of gold which will be treated as capital gains. And since the holding period here is less than 3 years, the gains will attract Short Term Capital Gains Tax under the Income Tax Act. So you pay tax on these gains as per your income tax slab.
That is tax on gold profits in general in short term (less than 3 years).
Example of Long Term Capital Gains on Gold
Suppose you purchased gold worth Rs 10 lakh on 14th May 2019 and sold the same for Rs 16 lakh on 27th January 2023. Now you have earned a profit of Rs 6 lakh on the sale of gold which will be treated as capital gains. And since the holding period here is more than 3 years, the gains will attract Long Term Capital Gains Tax under the Income Tax Act. Now the Long term capital gain earned from the sale of gold is taxed at 20% (plus cess) and is eligible for the benefit of indexation of the acquisition cost of gold. So the long-term capital gain is computed by first adjusting the cost of acquisition for inflation, then reducing that indexed cost from the net selling price realized.
That is the tax on gold profits in general in long term (more than 3 years).
I have also written a few other articles on investing in Gold here on the site. Some of these useful ones are listed below for reference:
- 8 investing parameters of Gold Bonds (My views in Morningstar)
- Gold Bonds Vs. Gold ETFs
- How to use Gold bonds, ETFs and funds in your portfolio?
- Frequently Asked Questions on Gold Bonds and ETFs
- Taxation of Gold in India
- Gold Bond Issue Price History (Since 2015)
- (Quoted: Hindustan Times) – Look beyond Physical Gold (towards Gold Bonds & ETFs)
Gold bonds are considered one of the best ways of investing in gold when it comes to digital routes. So if you are planning to invest or are already invested in gold bonds, then I hope you found this article on gold bond taxation in India 2023 useful.
PLEASE CLARIFY ON TAXATION ON GOLD BONDS PURCHASED FROM STOCK MARKET AND HELD TILL MATURITY
Well written and briefly explained blog. As per me, SGB can be a good investmentz option for individuals who want to invest in gold. One more point to add that we can apply for SBG on behalf of minor too. but the application needs to be made by the guardian.