Looking at the consumer demand for gold during Akshaya Tritiya, the Centre on Monday, opened the first series of the Sovereign Gold Bond for 2018-19. While these bonds are attractive relative to other form of investment in gold due to a coupon payment on value of investment, there has been an ambiguity on taxability of the bond since its launch in 2015.

Every time a new series of the bond was launched, the press releases of the Finance Ministry and the Reserve Bank of India, would state – ‘The capital gains tax arising on redemption of SGB has been exempted.’ The statements were however silent on taxability on pre-mature exit. Though the tenor of the bond is 8 years, the Centre gave investors the option to exit in the 5th/6th/7th year.

This time again, there was no clarity on taxability of gains for those opting for pre-mature exit.

FinMin clarifies

However, in response to a query over telephone, a Ministry of Finance official explained that redemption at the end of 8 years as well as pre-mature exits from the 5th year, which are offered by the Centre, are exempt from capital gains. This benefit, though, is only for individuals. HUF and Trusts who are also allowed to invest in these bonds, are not eligible for capital gain tax exemption.

If you are an investor who bought these bonds in the secondary market (sovereign gold bonds get listed in the stock exchanges within a fortnight of the close of the issue), note that provisions of the Income Tax Act will apply on sale. If you hold the gold bond for 36 months or less, the capital gains will be taxed at slab rate and if you hold for more than 36 months, the capital gains will be taxed at 20 per cent with indexation benefit.

The coupon payment, that is, the interest you receive on these bonds, will always be taxed as per the individual’s slab rate.

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