Sovereign Gold Bonds: Who Is Eligible For Tax Exemption? Know Latest Rules

Sovereign gold bonds (SGBs), issued by the Reserve Bank of India (RBI) on behalf of the Government of India, have been in discussion among investors after their meteoric returns, especially when the stock markets have remained under pressure for over the past year. SGBs have gained over 300% returns on their investments. What makes it even more attractive is its tax exemption on capital gains. However, the Union Budget 2026-27 has clarified who are eligible for the tax exemption. Here are the latest rules:

SGBs are a popular alternative to physical gold because they combine gold-linked returns with government backing and can be traded on stock exchanges or held till maturity.

Union Budget 2026-27: Who Is Eligible For Tax Exemption On SGBs?

The

Budget 2026 brought a significant change in the taxation of SGBs: Capital gains that were previously tax-free on redemption at maturity are now allowed only in very specific cases.

The latest provision becomes effective from April 1, 2026, (financial year 2026-27).

Key Eligibility for Tax Exemption

1. Original Subscribers Who Hold Till Maturity

If you purchased the SGB directly from the RBI / Government at the time of original issuance, and you hold that same bond continuously until maturity (8 years), your capital gains on redemption remain tax-free. This is the only scenario where the classic tax benefit survives after Budget 2026-27.

However, if you have bought it from the secondary market (Zerodha, Groww, or from other brokerages), your gains are not eligible for tax exemption.

So, only those investors who had bought SGBs at the time of issuance and hold them till maturity are eligible for the tax exemption.

Criteria to qualify:

• You must be an individual investor.
• The SGB must have been bought during the original issue (primary issuance).
• You must have held it continuously till maturity (no transfers or break in holding).

2. Secondary Market Buyers

Investors who buy SGBs on stock exchanges (like NSE or BSE) — i.e., not at the original government issue — will no longer get tax exemption on capital gains at maturity, even if they hold the bond till maturity.

Gains from these bonds will be taxed as per normal capital gains tax rules:

• Short-term Capital Gains (if held ≤ 12 months): taxed as per your slab.
• Long-term Capital Gains (LTCG) (if held > 12 months): taxed at 12.5% without indexation.

3. Premature Redemption

Under earlier practice, an investor could avail of tax-free redemption if exiting through the RBI’s window after 5 years. But the Budget 2026-27 also removes this exemption on premature redemption. Even original subscribers will face capital gains tax if they redeem before full maturity under the new rules from FY 2026-27.

Taxability For 2.5% Annual Interest

The interest income (2.5% per annum) paid on SGBs has never been tax-free. It continues to be taxable under ‘Income from Other Sources’ at your slab rate, and there is no TDS, but investors must disclose this in their tax return.

No Change in RBI/Issue Limits

Rules around maximum investment limits (e.g., 4 kg per individual) and the nature of SGBs remain unchanged. Tax changes only affect capital gains.

Why the Change?

The government amended Section 70(1)(x) of the Income-tax Act to clarify that the exemption for capital gains on SGB redemption only applies where the bond was subscribed to at original issue and held to maturity, removing ambiguity around secondary market purchases.

What Is The Sovereign Gold Bonds Scheme?

The Sovereign Gold Bond (SGB) Scheme was launched by the Government of India in November 2015 as an alternative to owning physical gold. Issued by the Reserve Bank of India (RBI) on behalf of the Centre, these bonds were denominated in grams of gold and offered investors the dual benefit of earning a fixed annual interest (2.5% on the issue price) along with capital appreciation linked to gold prices. The scheme aimed to reduce India’s dependence on imported physical gold, curb hoarding, and channel household savings into financial assets.

Why Was The SGB Scheme Discontinued?

The government discontinued fresh issuances of SGBs in October 2023, citing that the scheme had largely achieved its objectives and that the cost of managing and servicing the bonds had grown significantly. Another key factor was the availability of other gold investment avenues such as Gold ETFs and digital gold, which reduced the need for periodic SGB issuances. However, existing bonds remain valid, and investors can hold them until maturity or opt for premature redemption as per the scheme’s rules.