Capital Gains on Sovereign Gold Bonds: Maturity Exemption, Premature Exit, and Secondary Market Sale
TL;DR
- Capital gains on Sovereign Gold Bonds (SGBs) held to the full 8-year maturity are fully exempt under Section 47(viic) and the proviso to Section 48.
- Premature redemption to RBI after the 5th year retains the maturity exemption only if held in your name throughout.
- Selling SGBs on stock exchanges (BSE, NSE) is a transfer that triggers capital gains: STCG at slab if held under 12 months, LTCG at 12.5 percent if held longer.
- The 2.5 percent annual interest paid by RBI is taxable as Income from Other Sources at slab rate every year.
- RBI stopped issuing new SGB tranches in 2024, so existing holders need to plan exits carefully.
What this means in plain terms
Sovereign Gold Bonds were the smartest way for Indian investors to own gold for almost a decade. You earned 2.5 percent annual interest on your investment, your bond price tracked the gold rate, and if you held all the way to maturity, the capital gain at redemption was completely tax-free. That last bit is genuinely unusual in the Indian tax code.
But the rules change the moment you sell before maturity. A bond sold on the BSE or NSE secondary market is a transfer for tax purposes, and the gain is fully taxable. With the government having stopped fresh SGB issues in 2024, existing investors face a fork in the road: hold to maturity for the exemption, or exit early and accept the tax hit. Knowing which applies to each tranche you hold matters.
Three exit paths and their tax treatment
Maturity redemption (year 8)
When RBI redeems your SGB on the maturity date by paying the prevailing gold-linked redemption price, the capital gain is exempt under the proviso to Section 48 read with Section 47(viic). This exemption is available only to individual investors (not HUFs, trusts, or companies for the gain portion).
Premature redemption to RBI (year 5 to 8)
RBI allows you to redeem your bond back to RBI on the interest payment date after the 5th year. This redemption to RBI carries the same maturity exemption for individuals because it falls under Section 47(viic).
Secondary market sale on exchange
If you sell your SGB on BSE or NSE before maturity, it is a regular transfer. STCG (held under 12 months) goes to your slab. LTCG (held 12 months or more) is taxed at 12.5 percent without indexation under Section 112 for sales on or after 23 July 2024. Listed SGBs use the 12-month threshold like any listed security.
How the gain is computed
Cost of acquisition
For primary subscribers, this is the issue price (typically Rs. 50 per gram less than the secondary market price at issue). For secondary buyers, it is the actual exchange purchase price plus brokerage and STT.
Sale consideration
For secondary sale, this is the net amount received from the broker after STT, brokerage, and exchange levies. The contract note from your broker is the primary evidence.
Holding period
Count from the date of allotment for primary subscribers or the date of purchase on exchange for secondary buyers. Up to and including the 12th month it is short-term; from the 13th month onward it is long-term.
Interest income vs capital gain
Annual 2.5 percent interest
RBI pays 2.5 percent per year on the face value (issue price) semi-annually. This is taxable as Income from Other Sources under Section 56 at your slab rate. It is not exempt even if you hold to maturity. TDS does not apply to SGB interest paid to residents.
Interest accrued but unpaid at sale
If you sell on the exchange just before an interest payment date, the buyer pays you the accrued interest as part of the price. This portion is taxable as interest income, not capital gain, in your hands.
Reporting in your ITR
Schedule CG for exchange sales
Report your secondary market SGB sale in Schedule CG of ITR-2. Use Section 112 for long-term gains and the relevant column for short-term.
Schedule EI for exempt maturity gain
The exempt gain on maturity redemption goes under Schedule EI (Exempt Income) of ITR-2 under "Other exempt income" with a note quoting Section 47(viic).
Interest in Schedule OS
The 2.5 percent annual interest goes into Schedule OS (Income from Other Sources) of your ITR every year you received it, regardless of how long you continued to hold the bond.
What changed in 2024 for SGB holders
No new tranches since February 2024
The Government of India stopped fresh SGB issues after the SGB 2023-24 Series IV tranche issued in February 2024. Existing bonds continue to mature on their original schedule, with the last tranche maturing around 2032.
Premature buyback windows
RBI publishes early redemption dates well in advance on rbi.org.in. Your 5-year window opens on the interest payment date after the 5th anniversary of issue. Apply through your depository participant or RBI-Retail Direct.
Liquidity has tightened
With no new supply, secondary market liquidity has thinned. Bid-ask spreads on some older tranches widened in 2025-26, which means selling on exchange may give you a slight discount to the implied gold rate.
A real example
Arjun, 36, Rs. 18L CTC, Hyderabad, holds two SGB tranches purchased in primary subscription:
- SGB 2017-18 Series III: 50 grams at issue price Rs. 2,956 per gram, total cost Rs. 1,47,800. Matures October 2025.
- SGB 2019-20 Series IV: 30 grams at issue price Rs. 3,890 per gram, total cost Rs. 1,16,700. Matures September 2027.
In October 2025, the first tranche matures. RBI pays redemption at Rs. 7,400 per gram, total Rs. 3,70,000. Arjun's gain of Rs. 2,22,200 is fully exempt under Section 47(viic). He reports this in Schedule EI.
In March 2026, Arjun needs liquidity and sells the second tranche on NSE at Rs. 7,250 per gram, net Rs. 2,15,500 after brokerage. Holding period exceeds 12 months, so it is long-term.
- Sale consideration: Rs. 2,15,500
- Cost of acquisition: Rs. 1,16,700
- LTCG: Rs. 98,800
- Tax at 12.5 percent: Rs. 12,350 plus 4 percent cess = Rs. 12,844
Arjun also reports Rs. 2,917 of annual interest received across both bonds in Schedule OS at his slab rate.
What to do this week
- Pull out your CDSL or NSDL consolidated statement and list every SGB tranche with allotment date, units, and current value.
- Map each tranche to its maturity date and mark the 5-year premature-exit window in your calendar.
- Decide whether to hold to maturity (full exemption) or exit on exchange (taxable) for each tranche based on your liquidity needs.
- Save half-yearly interest credits from RBI in a separate bank-statement folder to make ITR filing painless.
- Run the 6-step assessment at https://myfinancial.in to see your old-vs-new regime delta, unused deductions, and insurance gap in under 10 minutes.
FAQ
Is the maturity exemption available to HUFs?
The proviso to Section 48 grants the capital gains exemption to "an individual" on redemption of SGBs. HUFs holding SGBs do not get the exemption on maturity and need to compute LTCG normally.
What if I sell on exchange in year 7?
Year 7 sale on exchange is a transfer triggering LTCG at 12.5 percent without indexation. To preserve the exemption, you would need to redeem to RBI directly on a premature exit window.
Is the 2.5 percent interest exempt if I hold to maturity?
No. Only the capital gain on redemption is exempt. The semi-annual interest is taxable every year as Income from Other Sources at your slab rate.
Does TDS apply on SGB interest?
No TDS is deducted on SGB interest paid to resident individuals. You must self-declare the interest in your ITR.
Can I gift SGBs to my children?
Yes, by off-market transfer through your depository. The recipient's holding period includes yours, and the cost carries over for capital gains computation when they eventually sell or redeem.
What if RBI announces a new SGB scheme in 2026?
Watch rbi.org.in for fresh tranche notifications. Any new tranche will carry the same tax structure unless the law is amended in the relevant Finance Bill.
Can I claim Section 54F by reinvesting SGB sale proceeds in a house?
Yes. Section 54F applies to any long-term capital asset other than a residential house. SGB exchange sales qualify if all conditions (reinvestment timeline, single-house ownership limit) are met.
Sources
- Income Tax Act 1961, Sections 47(viic), 48 proviso, 56, 112 — https://incometax.gov.in
- Reserve Bank of India SGB scheme notifications — https://rbi.org.in
- RBI press releases on SGB issuances and redemptions — https://rbi.org.in
- BSE and NSE listing information for SGB tranches — https://nseindia.com
- CBDT FAQs on capital gains — https://incometax.gov.in
This is general information, not personalised advice. For your situation, consult a Certified Financial Planner.
