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Sovereign Gold Bond

What are the Tax Implications of Investing in Sovereign Gold Bonds

You can maximize your returns effectively by understanding their tax implications, as they are highly beneficial with tax benefits compared to other steady-growth investments.

Indians have long favored gold as an investment because of its stability in unpredictable markets. The cultural relevance of these investments in India has made them hugely successful. Moreover, gold investments are recognized as a form of protection against inflation and economic uncertainty. 

Investors can invest in physical gold items such as jewelry or gold coins, gold exchange-traded funds, sovereign gold bonds, or gold mutual funds, which are more liquid and reasonable assets. However, due to its theft risk, physical gold includes storage and safety costs. Furthermore, the returns on gold are lower when acquired as jewelry due to manufacturing expenses.

As a result, the Indian government launched Sovereign Gold Bonds to mitigate these negative effects. They offer tax benefits on sovereign gold bonds along with exposure to gold. They remove all manufacturing and disposal expenses, resulting in better actual rates of return. For investors who are unwilling to take risks, these bonds may be an effective means of diversification.

Key Takeaways

  1. If SGBs are held till maturity, they attract zero capital gain tax.
  2. Interest from SGBs is considered “Income from Other Sources” and is taxable as per the respective tax slabs. 
  3. If encashed within 36 months they attract short-term capital gains and are applied as per the respective tax slab 
  4. If encashed after 36 months, but before maturity, they attract long-term capital gain tax which is 10% without indexation otherwise 20% with indexation.
  5. Early withdrawal is possible only after holding it for 5 years with applicable long-term capital gain tax.
  6. No storage costs and safety concerns are applicable here unlike the physical gold. 
  7. The recent changes affect the long-term capital gain tax in ETFs, making SGBs more attractive 

Why are people rushing to invest in gold?

Yes, people are allured more by gold for various reasons, including:

  1. At uncertain times, it serves as a safe investment option.
  2. Unlike any other currency, they believe it to have an intrinsic value that wouldn’t degrade, thus backing against inflation and deflation.
  3. Be it political or economic instability, gold is the one more invested during this time, as stocks and bonds can look like very risky assets while gold seems to maintain or increase in value.
  4. Its price value is independent of other assets, thus making an individual player in the portfolio, balancing it when others are falling.
  5. Central banks keep gold as a reserve and have consistently been the net buyers in recent years, which brings individual investors to trust in the asset. 

What is a Sovereign Gold Bond?

What is a Sovereign Gold Bond

In November 2015, the government introduced the sovereign gold bond scheme, which aims to lower the market demand for physical gold and turn some domestic funds that had been used to buy gold into monetary savings.

The selling price of a Sovereign Gold Bond is established by taking a simple average of the closing values of 999 purity gold over the previous three days, as set by the Indian Bullion and Jewellers Association Limited.

The Sovereign Gold Bond scheme offers an interest rate of 2.5% annually and pays out half-yearly to investors.

Sovereign Gold Bonds are government bonds that are valued in gold grams. The Reserve Bank of India (RBI) issues these bonds in the name of the government of India. Sovereign Gold Bonds are a safe, practical, and affordable investment choice since they let investors buy gold without requiring significant storage. 

Sovereign Gold Bonds are available for purchase from specific banks, postal offices, and stock exchanges. They are issued in several portions over the course of the year. The RBI announces the bond price prior to each phase, which is based on the present market value of gold. 

Sovereign Gold Bonds typically have an 8-year term, with a withdrawal option offered after the fifth year on interest payment dates, and they could be traded in secondary markets. There are several income tax benefits on sovereign gold bonds.

Analysis of the First tranche of Sovereign Gold Bond with respect to tax 

The first issue of the SGB tranche was on November 30, 2015, and if you, as an investor, had invested during this time until 8 years of maturity, here’s what it looked like with returns and tax.

Issue price: Rs 2684 per gram of gold 

Interest rate: 2.75%

Redemption price: 6,132 per gram of gold 

No of units: 100 grams

Maturity period: November 30, 2023

The number of units invested is 100; 100 units = 100 grams 

The investment amount during the issue is Rs 2,684 100 = Rs 2,68,400

The capital appreciation of investment during redemption is Rs 6,132 100 = Rs 6,13,200

ParticularsReturns
Year 12,68,400 2.75% = 7,381
Year 27,381
Year 37,381
Year 47,381
Year 57,381
Year 67,381
Year 77,381
Year 87,381
Total Interest59,048
Capital Appreciation6,13,200 - 2,68,400 = 3,44,800
Total Gains3,44,800 + 59,048 = 4,03,848
Capital Gain Tax held till 8 years0
Interest Income TaxAs per the income tax slab, assuming a 20% slab rate for an income of 12.5 lahks, the total income, including interest income, is 12,50,000 + 59,048 = 13,09,048 Tax for 12,50,000 = 1,00,000 Tax for 13,09,048 = 1,11,809.60 Tax for interest income = 1,11,809.60 - 1,00,000 = 11,809.60 Which is 59,04820% = 11,809.60
Total profit4,03,848 - 11,809.60 = 3,92,038.40

The profit after tax on the investment value of Rs 2,68,400 after 8 years is Rs 3,92,038.40

If you sell before three years, it attracts short term capital gain tax, which is considered income from other sources and added to your total income. Let’s see the returns after STCG.

Price of SGB in 2017 = Rs 2,934 

Selling 100 units this time is  2934 100 =Rs 293400

The Capital Appreciation is 2,68,400 – 2,93,400 = Rs 25,000

ParticularsReturns
Total InterestRs 59,048
Capital GainsRs 25,000
Total Gains59,048 + 25,000 = 84,048
Capital Gain TaxTaxed as per individual slab
Interest Income TaxTaxed as per individual slab
Tax incurredAs per the income tax slab, assuming a 20% slab rate for an income of 12.5 lakh, the total income, including capital gains and interest income, is 12,50,000 + 84,048 = 13,34,048 Tax for 12,50,000 = 1,00,000 Tax for 13,34,048 = 1,16,809.60 Tax for capital gain and interest income included = 1,16,809.60 - 1,00,000 = 16,809.60 Which is 84,048 20% = 16,809.60
Total Profit84,048 - 16,809.60 = 67,238.40.

The profit after tax on the investment value of Rs 2,68,400 after 8 years is Rs 3,92,038.40

If you sell before three years, it attracts short term capital gain tax, which is considered income from other sources and added to your total income. Let’s see the returns after STCG.

Price of SGB in 2017 = Rs 2,934 

Selling 100 units this time is  2934 100 =Rs 293400

The Capital Appreciation is 2,68,400 – 2,93,400 = Rs 25,000

ParticularsReturns
Total InterestRs 59,048
Capital GainsRs 25,000
Total Gains59,048 + 25,000 = 84,048
Capital Gain TaxTaxed as per individual slab
Interest Income TaxTaxed as per individual slab
Tax incurredAs per the income tax slab, assuming a 20% slab rate for an income of 12.5 lakh, the total income, including capital gains and interest income, is 12,50,000 + 84,048 = 13,34,048 Tax for 12,50,000 = 1,00,000 Tax for 13,34,048 = 1,16,809.60 Tax for capital gain and interest income included = 1,16,809.60 - 1,00,000 = 16,809.60 Which is 84,048 20% = 16,809.60
Total Profit84,048 - 16,809.60 = 67,238.40.

The profit after tax on the investment value of Rs 2,68,400 after 2 years is Rs 67,238.40 

If you sell after three years, assuming you sell in your fifth year, it attracts long term capital gain tax, which is taxed at 10%  or 20% with indexation.

Price of SGB in 2020= Rs 5,177

Selling 100 units this time is 5177 100 =Rs 5,17,700

The Capital Appreciation is 2,68,400 – 5,17,700 = 2,49,300

ParticularsReturns
Total InterestRs 59,048
Capital GainsRs 2,49,300
Total Gains59,048 + 2,49,300 = 3,08,348
Capital Gain Tax10% or 20% with indexation
Interest Income TaxTaxed as per individual slab
Tax incurred on interestAs per income tax slab, assuming 20% slab rate for an income of 12.5 lakh, the total income, including capital gains and interest income, is 12,50,000 + 59,048 = 13,09,048 Tax for 12,50,000 = 1,00,000 Tax for 13,09,048 = 1,11,809.60 Tax for interest income = 1,11,809.60 - 1,00,000 = 11,809.60 Which is 59,048 20% =11,809.60
Tax incurred on capital gain10% tax: 3,08,348 10% = 30,834.80 20% + indexation: For indexation benefit, CII (cost inflation index) is considered during the purchase and while selling. CII for the year of purchase (2015): 254 CII for the year of sale (2020): 301 Indexed purchase price = 2,684301254=3,180.54 The indexed purchase price for 100 grams = 3,18,054 Selling price = 5,17,700 Taxable gain = 5,17,700 - 3,18,054 = 1,99,646 Tax = 20% 1,99,646 = 39,929.20 If the selling price was less than the purchasing price, then there would be no capital gain tax. 10% (30,834.80) < 20% (39,929.20) Pick whichever is lower; in this case, it is 10%
Total TaxFor 10% = Interest Tax + Capital Gain Tax = 11,809.60 + 30,834.80 = 32,644.40
Profit After Tax3,08,348 - 32,644.40 = 2,75,703.60

The profit after tax on the investment value of Rs 2,68,400 after 5 years is Rs  2,75,703.60

Comparatively, the profit after 8 years is greater than that after 5 years and 2 years for 100 grams of investment.

3,92,038.40 > 2,75,703.60 > 67,238.40

Sovereign Gold Bond Tax Implications

Sovereign Gold Bond Tax Implications

There are several income tax benefits to sovereign gold bonds under the tax regimes of these investments.

Sovereign Gold Bond Tax Implications on Interest Income

Investors of Sovereign Gold Bonds are entitled to interest payments at a rate of 2.5% per annum on their initially invested amount. Given that this kind of income is not excluded from tax under the terms of the IT Act, it must be taxed at the applicable slab rates under the heading “Income from Other Sources”.

Sovereign Gold Bond Tax Implications on Redemption on Maturity/Capital Gains Tax

Capital gains are profits earned as a result of an increase in the price of the underlying asset. According to Section 47(viic) of the IT Act, any redemption of Sovereign Gold Bonds that were issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015 by a person is not considered a “transfer.” Individual taxpayers will not be required to pay capital gains tax if they redeem their Sovereign Gold Bond investment at maturity.

Sovereign Gold Bond Tax Implications on Prior Sales of the Bonds: Short-Term Capital Gains Tax

Short-term capital gains tax will be applied to your gains if you trade the bond before 36 months have passed since your investment. The income tax slab that applies to your income will match the STCG that you are charged.

Sovereign Gold Bond Tax Implications on Prior Sales of the Bonds: Long-Term Capital Gains Tax

In the event that you trade the Sovereign Gold Bonds after 36 months, you will be subject to Long Term Capital Gains (LTCG) taxation. 10% is the LTCG on Sovereign Gold Bonds without indexation advantages, and 20% is the LTCG with indexation benefits. You have the option of choosing the lower one. With indexation, inflation related to the bond’s original cost is taken into consideration when calculating actual capital gains.

Sovereign Gold Bond vs Physical Gold vs Gold ETFs: Tax Implications

Sovereign Gold Bond vs Physical Gold vs Gold ETFs: Tax Implications

Since gold investments are one of the major investments in India, there are certain tax norms for different kinds of gold investments.

Sovereign Gold Bond Tax Implications

It will be considered an LTCG when you cash it within the first five years. The tax rate on LTCG from SGB is either 10% without indexation advantages or 20% with indexation advantages. The interest received on SGB is taxable as income from other sources and is not tax deductible.

Physical Gold Tax Implications

You may be subject to short-term capital gains tax when you sell gold and silver three years following the purchase or earlier than 36 months. The effective income tax slab rate determines how much is taxed on the STCGs.

One may be liable for long-term capital gains tax if they sell gold and silver after possessing them for a period exceeding three years or longer than 36 months. The LTCG tax on precious metals like gold and silver has the added benefit of indexation and is imposed at a set rate of 20% plus a 4% cess.

Gold ETFs Tax Implications

Gold ETFs and gold-savings funds acquired before and after March 31,  2023, are taxed differently, which affects how their capital gains are treated:

Pre 31st,  2023

Gold ETFs are managed and taxed in the same way as physical gold. If possessed for three years or longer, they become long-term capital assets. It will be subject to indexation advantages and a 20% tax rate. The taxes are paid at the time of redemption or sale.

Post 31st March 2023

Irrespective of the duration that you hold onto the gold ETFs, you will be taxed on short-term capital gains. The taxes are paid at the time of redemption or sale and are subject to slab rates of taxation.

Get Sovereign Gold Bond Income Tax Benefit with GoldenPi

Due to the major sovereign gold bond scheme income tax benefit, these bonds have been considered one of the most interesting investment options in India in recent years. When the investment is converted into cash, any capital gains will be fully tax-free. This is a unique tax benefit provided by the government that helps make gold bonds more appealing to attract greater numbers of investors to switch from physical to non-physical gold.

If you are an investor and want to diversify your portfolio, sovereign gold bonds prove to be a great investment choice. These bonds let you invest in gold with a small amount of investment. To get the listings of sovereign gold bonds, you can log in to GoldenPi and get the details about each sovereign gold bond. 

Sign up on GoldenPi and start investing today!

FAQs About Sovereign Gold Bond Tax Benefit

1.What are the tax implications of investing in Sovereign Gold Bonds? 

It’s a tax-free capital gain in Sovereign Gold Bonds if held till maturity of 8 years. The earned interest rate is alone taxable as it is considered as the “Income from Other Sources” at the slab rates applicable to you.

2. How do we show SGB’s interest in ITR?

The interest received from SGB needs to be reported in the schedule under other sources in the ITR. Depending on the eligible criteria of an individual, it can be filed in either ITR 1, 2, 3 or 4.

3. Can NRIs invest in SGBs?

Sovereign Gold Bond investment isn’t allowed for NRIs but if you invested before the change in citizenship, it can be held till maturity and reap the benefits of the investment. 

4. Can nominees claim the sovereign gold bond amount upon the investor’s death?

Yes, upon the death of the investor, the nominee can claim the SGB, as there is an option for adding the nominee details while investing in SGB, but S/he must be a resident of India. But in the event of the death of an investor, if the nominee is not an Indian citizen, they can just hold it until maturity. Still, they can’t transfer the maturity amount and interest to their own country.

5. Is Sovereign Gold Bond better than Gold ETF?

If you want to invest easily and maybe profit from short-term price alterations, go for gold exchange-traded funds (ETFs). SGBs are the best option if you value capital security, guaranteed returns, and tax advantages over instant liquidity.

6. What is the disadvantage of the gold ETF?

In periods of geopolitical unrest or economic uncertainty, gold ETFs would not perform quite as well as physical gold.

7. Which is better, a Sovereign Gold Bond or a Fixed Deposit?

Investing in SGBs offers protection against inflation, as compared to PPFs or FDs, which have experienced inflation over time. 

8. Do gold ETFs hold physical gold?

Several gold exchange-traded funds (ETFs) make investments directly in physical gold bullion. The benefits of investing in a gold exchange-traded fund (ETF) backed by physical gold include access to gold assets without requiring you to hold any physical gold and the ability to invest small amounts of money. Furthermore, gold ETFs have higher liquidity than physical gold.

9. Is Sovereign Gold Bond tax-free after 5 years?

The Sovereign Gold Bond has an eight-year term, although investors can choose to cash out earlier than the interest payment date following the bond’s fifth year of issuance. After the five-year period, you can transfer or sell the bonds, under LTCG, the appropriate tax rate is 20%, plus cess, less the benefits of indexation. According to the rules of the IT Act of 1961, interest received on Sovereign Gold Bonds is taxable.

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What are Sovereign Gold Bonds and How Do They Work?

Gold has symbolized not only wealth but also cultural and emotional value in India since ancient times. Buying gold on special occasions is still considered auspicious. 

It is no secret that the people in the country have, time and again, opted for gold investment over many alternatives, even those offering greater returns. 

Gold has symbolized not only wealth but also cultural and emotional value in India since ancient times. Buying gold on special occasions is still considered auspicious. It is no secret that the people in the country have, time and again, opted for gold investment over many alternatives, even those offering greater returns. 

Considering the worth of gold in terms of finance and otherwise, various gold schemes have been launched in the market over the years; sovereign gold bonds are among the most popular ones!

In 2015, the Government of India introduced the SGB or Sovereign Gold Bond Scheme. Investing in sovereign gold bonds allows individuals to invest in gold without the need for physical storage, while also offering the benefits of capital appreciation and periodic interest income. The idea was to allow investors to reap benefits by investing in gold without the need for physical possession. The record subscriptions in FY24, which are 3.62 times higher than in FY23, show the demand for these bonds.

For those yet to add a sovereign gold bond to their investment portfolio, a thorough study of these securities is definitely suggested. Those who have already invested in these bonds or have some basic knowledge about them will benefit from a more in-depth look at how these bonds are issued and how they function!

Key Takeaway 

  1. In consultation with the Government of India, RBI issues SGBs 
  2. They are measured in terms of denomination of grams of gold 
  3. The minimum investment required is equal to the 1 gram of gold price 
  4. The maximum investment for individuals and HUFs is up to the price of 4 kg of gold and for trusts and corporations up to the price of 20 kg of gold per fiscal year.
  5. The tenure of SGB investment is 8 years with premature withdrawal allowed after 5 years.
  6. The interest rate is paid semi-annually 
  7. You can purchase SGBs via banks, brokers, online entities and post offices 
  8. You are exempted from long-term capital gains if held till maturity 
  9. The redemption price depends on the average closing price of 999 purity price of gold over the previous 3 working days before redemption.
  10. SGBs after 2 weeks of holding, it is tradable on stock exchanges from the day of subscription with price depending on the gold’s market rate and the ratio of demand and supply.

The Question of the Hour: What is a Sovereign Gold Bond?

The Question of the Hour: What is a Sovereign Gold Bond?

The RBI,  Reserve Bank of India, issues sovereign gold bonds in consultation with the government. The government securities are denominated in grams of gold. Here, each bond represents 1 gram of gold, and the sovereign gold bond price will rise and fall with the price of gold.

Gold prices are less likely to be influenced by market fluctuations, and gold bonds are counted among the safer investment instruments. Consider these a safer and more convenient alternative to physically buying and storing gold. Investors subscribing to these bonds pay the issue price online, receive the bond certificate, and can redeem the bond online on the day of maturity. These bonds allow investors to reap financial benefits from high gold prices and government-backed security.

The Purpose behind SGB

It was introduced by the Government of India to find an alternative to Gold investments that offer convenience and security while reducing the demand for gold to be imported. It also promotes savings in households making it a productive investment.

How Does a Sovereign Gold Bond Work?

How-Does-a-Sovereign-Gold-Bond-Work

In a fiscal year, the RBI  issues sovereign gold bonds in tranches under Government of India stocks. The bond issuance is announced through a press release every 2 to 3 months. A specific window (generally 1 week) is predetermined for allowing investors to subscribe to the bonds. Only once a sovereign gold bond is successfully purchased is the holding certificate issued in the investor’s name.

Note: Tranches refer to securities’ collections, separated and grouped according to different characteristics and offered to investors. The maturity dates, credit ratings, and interest rates can differ for tranches.

As investors, to prepare for the investment process of  a sovereign gold bond issuance, subscription, and purchase, the following factors must be kept in mind:

  • Sovereign gold bonds can be purchased via banks, post offices, brokers, and online entities. 
  • Besides direct purchases from the RBI, investors can opt for unit purchases through stock exchanges or the secondary market.
  • A discount of INR 50 per gram of gold is offered for digital purchases. This is to encourage investors to shift to digital investments.
  • Both digital and dematerialized forms of bonds are obtainable. Investors are free to request a bond transfer to their respective demat accounts after completing the physical purchase.
  • The bonds will remain in RBI’s record until the dematerialization is done. Dematerialization is also possible after allocation.

How is the price of an SGB issue determined?

The issue price is decided by the Government of India on behalf of the RBI. The issue price is the average of the last 3 business day’s closing price of the 999 purity gold which is normally announced by the India Bullion and Jewellers Association Ltd. 

Suppose the SGB is issued on July 10 to 17, the prices on July 3, 4, and 5 of the 999 purity gold being 6000, 6050, and 6100. The average of these prices is taken into account for the issue price. That is (6000 + 6050 + 6100) / 3 = 6050. Therefore the issue price of SGB on July 10 to 17 is 6050 Rs.

Important Features of Sovereign Gold Bonds

Investors will require the following information to understand their eligibility and the bonds’ utility in fulfilling investment goals:

Eligibility

Indian residents, including individual investors, HUFs (Hindu Undivided Families), trusts, universities, charitable institutions, and corporations, can purchase sovereign gold bonds. One can also invest on behalf of a minor.

Minimum & Maximum Subscription Cap

The minimum investment amount must be equivalent to the price of 1 gram of gold. The maximum amount varies depending on the investor. The upper investment cap equals the price of 4 kg of gold for HUFs and 20 kg for corporations and trusts.

Tenure & Premature Withdrawal

Sovereign gold bonds come with 8-year-long tenures. The minimal holding period is 5 years; premature withdrawal will be permitted only after that.

Investors can exit the bond on the 5th, 6th, and 7th years of bond tenure, but only on the interest payment dates. A request for premature redemption can be made 30 days before the interest payment date via the concerned bank, post office, offices of Stock Holding Corporation of India Limited, or agent. The last date for the request is one day before the interest payout date. 

Coupon Rate & Periodic Payouts

RBI announces the interest or coupon rate at the time of trance launch. The interest is paid semi-annually, twice a year. 

Redemption Price

Once the bonds mature, the redemption price is decided depending on the average closing price of gold of 999 purity in the previous 3 working days. IBJA, or India Bullion and Jewellers Association Ltd., is responsible for publishing the same.

Resale

Sovereign gold bonds can be resold in the secondary market after 2 weeks from the subscription date, subject to RBI’s notice. Investors must hold a digitized certificate stored in a Demat Account to trade bonds in the stock market. The resale price depends on the prevailing gold price and the demand-supply ratio in the market.

Taxation Rules

The taxation is pretty straight:

Capital Gains Tax

If you hold an investment till maturity that is 8 years, the capital gain tax is 0, otherwise, it attracts short-term capital gain tax if sold before 3 years as per individual’s tax slab or long-term capital gain tax if sold after 3 years, it is taxable for 10% without indexation or 20% with indexation.

Interest Income Tax 

The interest earned is taxable as per the individual tax slab.

SGB as Collateral

SGB also has the benefit of serving as collateral for taking a loan, which reduces the hassle of looking out for a loan. Up to 75% of the investment amount of the market value of the SGB is considered by the banks and financial institutions to give loans.

The SGB when used as collateral provides liquidity without having to sell the bonds and still continue to earn interest on it. The interest rate on these loans is lower than the unsecured loans. Therefore this offers flexibility and cost cost-effective way of accessing funds.

Who Should Consider Investing in Sovereign Gold Bonds?

It is most suitable for the following customers:

  • The long-term investor who ideally wants to invest for 5 to 7 years long investment.
  • Risk-averse investors who prefer the safety and stability of an investment.
  • Investors seeking regular income can receive a mighty interest income twice a year.
  • Tax-conscious investors who want to save on capital gains and want to receive indexation benefits for holding for 3 years.
  • Investors who are comfortable holding gold-related investments in digital format for ease and convenience.
  • Ideal for investors who want to diversify their portfolio with gold without storing physical gold.
  • Those investors who look for a hedge against inflationary pressure.

Previously Issued Sovereign Gold Bonds

Here are some sovereign gold bonds issued in the previous fiscal year.

Sovereign Gold Bonds FY 2022-23
SeriesIIIIIIIV
NSE TrackerSGBJUN30SGBAUG30SGBDE30IIISGBMAR31IV
Opening DateJune 20, 2022August 22, 2022December 19, 2022March 6, 2023
Closing DateJune 24, 2022August 26, 2022December 23, 2022March 10, 2023
Issue PriceINR 5,091INR 5,197INR 5,409INR 5,611
Minimum Bid Quantity1 gram1 gram1 gram1 gram
Sovereign Gold Bonds FY 2023-24
SeriesIIIIIIIV
NSE TrackerSGBJUN31ISGBSEP31IISGBDEC31IIISGBFEB32IV
Opening DateJune 19, 2023September 11, 2023December 18, 2023February 12, 2024
Closing DateJune 23, 2023September 15, 2023December 22, 2023February 16, 2024
Issue PriceINR 5,926INR 5,923INR 6,199INR 6,263
Minimum Bid Quantity1 gram1 gram1 gram1 gram

Sovereign Gold Bonds Return Calculation

Suppose an investor has invested in 10 units, 1 unit being equal to 1 gram or 1 bond, under Series I of SGB 2022-23. The price of each unit or bond is INR 5,091, and the semi-annual interest rate is 2.5%. Here’s how to calculate the cash flow.

TimeInterestInterest AmountCashflow
At the time of the Initial Investment-50410
1 year0 - 6 months1.25%1.25%*10*5091636.375636.375
6 months - 1 year1.25%1.25%*10*5091636.375636.375
2 years1 year - 1.5 years1.25%1.25%*10*5091636.375636.375
1.5 years - 2 years1.25%1.25%*10*5091636.375636.375
3 years2 years - 2.5 years1.25%1.25%*10*5091636.375636.375
2.5 years - 3 years1.25%1.25%*10*5091636.375636.375
4 years3 years - 3.5 years1.25%1.25%*10*5091636.375636.375
3.5 years - 4 years1.25%1.25%*10*5091636.375636.375
5 years4 years - 4.5 years1.25%1.25%*10*5091636.375636.375
4.5 years - 5 years1.25%1.25%*10*5091636.375636.375
6 years5 years - 5.5 years1.25%1.25%*10*5091636.375636.375
5.5 years - 6 years1.25%1.25%*10*5091636.375636.375
7 years6 years - 6.5 years1.25%1.25%*10*5091636.375636.375
6.5 years - 7 years1.25%1.25%*10*5091636.375636.375
8 years7 years - 7.5 years1.25%1.25%*10*5091636.375636.375
7.5 years - 8 years1.25%(1.25%*10*5091) + Principal636.375 + 5,0915727.375

Key Benefits of Investing in a Sovereign Gold Bond

Here are the factors that generally convince investors to opt for sovereign gold bonds.

  • Low Investment Value: An investor can start an investment with a minimum amount as low as 1 gram of gold.
  • Safe & High Returns: 2.5 % interest per annum is assured by sovereign backing.
  • Capital Appreciation: The market rate of gold tends to stay high, creating better opportunities for the investment to grow.
  • Tax-Saving: The long-term capital gains are tax-exempted if the bond is held till maturity.

Limitations of Sovereign Gold Bonds

  • Like the benefits, the instruments have few limitations
  • The tenure of staying invested is 8 years long with a premature withdrawal allowed only after the 5th year.
  • The interest income earned is taxable as  per the individual tax slab rate
  • The prices are linked to the gold and can be volatile.
  • Depending on the demand in the secondary market the selling can be limited.
  • The person must have digital knowledge to understand the transactions and open a demat account.
  • To be making returns out of an investment, you must stay in it for 8 years.

Why Choose Sovereign Gold Bond over Physical Gold?

Seeing the benefits over physical gold, SGB can help you in:

  • Since it is held in digital format there is no risk of theft and storage concerns.
  • In addition to the capital appreciation, it offers an interest of 2.5%.
  • Capital gains are tax-free if held till maturity.
  • It has no making or storage cost like that in physical gold.
  • It can be easily traded on the stock exchange 
  • It can act as a collateral for loan.
  • It is linked to the value of the 999-purity gold
  • Pricing is accurately related to the average closing price of the last 3 business days of the week preceding the subscription of 999 purity gold.

How to Buy Sovereign Gold Bond: Quick & Easy Investment Guide with GoldenPi

How to Buy Sovereign Gold Bond: Quick & Easy Investment Guide with GoldenPi

Invest in sovereign gold bonds with GoldenPi and enjoy a seamless experience. From lists of the latest issuances to all the required information on each bond, you will be carefully guided through each process. 

You can purchase the sovereign gold bond of your choice in 3 simple steps:

  • Complete the KYC on GoldenPi.
  • Enter the quantity in grams that you want to purchase.
  • Finalize the payment.

Relax and enjoy period payouts, capital growth, and assured returns on maturity!

FAQs About Sovereign Gold Bonds

1. What are Sovereign Gold Bonds and How Do They Work? 

Sovereign Gold Bonds (SGBs) are securities backed by the Government of India, and issued by the Reserve Bank of India (RBI). It is denominated in grams of gold and each bond is a representation of 1 gram of gold. They offer investors the opportunity to invest in gold without needing to store any physical form of gold. It offers an interest rate which is paid twice a year with a tenure spread over 8 years and has a premature withdrawal option available after 5 years.

2. Is the accrued interest on a sovereign gold bond subject to taxation?

Yes, the accrued interest is treated as regular interest and is charged as per your tax slab as it is treated as income from other sources.

3. Is the capital gain from the resale in the secondary market taxable?

The capital gains from reselling sovereign gold bonds in the secondary market will be taxed per individual tax slab if held for less than 3 years and at 20% of the total income after adjusting the indexation when held for more than 3 years.

4. Can a sovereign bond be used as collateral for loans?

Yes! You can apply for a loan up to 75% of the bond’s market value, as per the RBI’s  LTV regulations.

5. What are the required KYC documents for investing in sovereign gold bonds?

Identity proof such as an Aadhaar card, PAN, TAN, passport, or  Voter ID Card will be required to complete the KYC.

6. Are sovereign gold bonds transferable?

Sovereign gold bonds can be transferred. The bondholder needs to sign a transfer instrument in accordance with the Government Securities Act’s guidelines.

7. Is joint holding allowed for sovereign gold bonds?

Sovereign gold bonds are open for joint holding.

8. What are the available payment options for sovereign gold bonds?

To invest in a sovereign gold bond, you can make cash payments (up to INR 20,000), cheques, demand drafts, and electronic fund transfers.

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