Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold, serving as an alternative to holding physical gold. Issued by the Reserve Bank of India (RBI) on behalf of the Government of India, they provide investors with a way to invest in gold in a dematerialized form, eliminating the risks and costs associated with physical storage.

Eligibility to Invest

Persons resident in India, as defined under the Foreign Exchange Management Act, 1999, are eligible to invest in SGBs. This includes individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions. Even if an individual investor's residential status changes from resident to non-resident after purchasing the bonds, they can continue to hold the SGB until early redemption or maturity. Minors can also invest in SGBs, provided the application is made by their guardian. Each family member can purchase bonds in their own name, provided they meet the eligibility criteria.

Tax Implications and Recent Changes

The Union Budget 2026 brought in key changes regarding the tax benefits on SGBs. According to the updated rules, the exemption from capital gains tax upon redemption is exclusively available to original subscribers who hold the bonds until their full maturity of eight years. This provision is effective from April 1, 2026, and applicable from the assessment year 2026-27 onwards.

Here's a breakdown of the tax rules:

• Capital Gains on Maturity: If you are an original subscriber who purchased SGBs directly from the RBI and hold them until the 8-year maturity, the capital gains are exempt from tax.
• Exiting Before Maturity: If you exit SGBs through the RBI's 5-year redemption window after April 1, 2026, the capital gains will be taxable, even if you were an original subscriber. The tax will depend on the holding period and will be charged as long-term or short-term capital gains.
• Secondary Market Purchases: Investors who purchase SGBs from the stock exchange will no longer receive tax-free capital gains, even if they hold the bonds until maturity. Any gains in such cases will be taxed as capital gains.
• Interest Income: The annual interest of 2.5% earned on SGBs remains taxable according to your income tax slab.

These changes aim to ensure that the tax benefits are availed by investors who are in it for the long haul, rather than those trading in the secondary market.

Other Important Points

• KYC Norms: Every application must include the PAN number issued by the Income Tax Department to the investor(s).
• Investment Limits: The minimum and maximum investment limits are defined by the RBI. The maximum limit is applicable to the first applicant in the case of joint holding. An investor/trust can buy a certain amount of gold every year as the ceiling has been fixed on a fiscal year (April-March) basis.
• Where to Purchase: Bonds are sold through Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL), and authorized stock exchanges.
• No new tranches: No new Sovereign Gold Bond tranches have been announced for the financial year 2026-27.

Benefits of SGBs

SGBs offer a blend of security, return, tax efficiency, and convenience. They eliminate the risk of storage and purity concerns associated with physical gold. The bonds are held in the books of the RBI or in demat form, removing the risk of loss. SGBs can also be used as collateral for loans.