Sold sovereign gold bonds at market highs? Here’s how to calculate your taxes

Rising gold prices have forced sovereign gold bond (SGB) owners to rethink their strategy. Several stockbrokers told Moneycontrol that the bids for selling SGBs of the August and September 2024 series have been inching up ever since the yellow metal touched Rs 72,500 per 10 grams on April 14, 2024.

Around Rs 22.43 crore worth of SGBs changed hands on the National Stock Exchange on April 15.

SGBs allow you to invest in gold in dematerialised form without the storage and purity issues linked to physical gold. It is true that the bonds once purchased mature only eight years later, but early encashment is possible through Reserve Bank of India after the fifth year from the date of issue on coupon payment dates.

But you could also sell your SGBs on the stock market before the fifth year, if you hold SGB units in dematerialised form.

With March 28 having been the last redemption date via the RBI, there is hardly any window to cash in on the surge in gold prices driven by escalating geopolitical tensions. If you are planning to sell your SGB units on the exchanges or have just received the money by redeeming the eight-year-old investment in SGB2016 Series II bonds, it is essential to know the taxation applicable.

This is because the RBI doesn’t levy taxes before payment of the money to an individual. However, you will need to pay taxes when filing your returns. Here’s what you need to remember.

How Sovereign Gold Bonds are taxed

Taxation for maturing bonds

To understand the tax implication, let us understand the two different situations.

Say you had invested Rs 2.92 lakh (100 units) in the 2016 Series II Bonds and offered the same for redemption to the RBI. You would be receiving a redemption price of Rs 7.24 lakh which includes the interest of Rs 64,152 apart from Rs 6.6 lakh of the gold value.

“The words used under SGB investments are ‘capital gains is exempted if held till maturity’. But the interest would be added to your overall income and taxed as per the relevant tax bracket,” says Mumbai-based chartered accountant Mehul Sheth.

Since you held the bonds until they matured, you wouldn’t have to pay any tax on the Rs 6.6 lakh received as appreciation in gold prices.

Also read | Gold rewards investors. But don’t go overboard, it’s just an asset allocator

Taxation on Interest

The interest, received bi-annually, is added to your income and taxed as per the tax slab. So if you are in the 30 percent tax bracket, you will have to pay tax on SGB interest also at 30 percent.

Mention this interest in the ‘other income’ column in your tax return directly to pay the appropriate tax.

Selling prematurely on exchanges

Six years after buying 100 units in SGB series I-2017-18, Shyamala Kurian, a 47-year-old  resident of Thiruvananthapuram, decided she wanted to sell her units two years before maturity and buy physical jewellery on the occasion of the Malayalam new year Vishu.

On April 15, she sold her original SGB investment of Rs 2.95 lakh for Rs 7.24 lakh on the National Stock Exchange at a price of Rs 7,239 per unit. But since she did not hold the units till maturity, her gold price appreciation would now be taxed.

As per the rules, “Since she has traded the bond units after three years of holding them, she will pay a tax of 10 percent on the gold appreciation. Alternatively, she can get an indexation benefit (inflation-adjustment) and pay 20 percent tax,” says Sheth.

So Kurian will have to pay Rs 42,880 as 10 percent capital gains tax, which is a little shy of the total Rs 44,265 interest she earned over the past six years through her SGBs.

Selling within three years of buying

Many SBG investors asked Moneycontrol about the taxability of 2022-2023 series III bonds bought at Rs 5,409 per unit, issued in December 2022. If they sold the bonds on the stock exchange today, they would surely get a wholesome return of 33 percent on the gold price, but the entire amount received would be added to their income and taxed as per the slab.

So instead of 10 percent tax applicable on bonds sold after three years, they would have to pay 30 percent tax if they are in the higher tax bracket.

Also read | Can SGBs continue to outperform gold funds?

Surrendering units to RBI prematurely

Even though these bonds mature after eight years, an option for premature withdrawal is available after five years by tendering the bonds to the RBI before the payment of the interest or coupon, as it is termed.

While the tax would be same as any premature withdrawal after three years, the timing of offering the units for redemption is crucial.

So, inform the bank or the distribution agency from where you purchased the bonds 30 days prior to the interest payment.