A Golden Exit
The Reserve Bank of India (RBI) authorized the final redemption of Sovereign Gold Bonds (SGBs) from the 2017-18 Series IV on October 23, 2025. This series,
originally issued on October 23, 2017, reached its eight-year maturity, as per the established guidelines. This led to a very profitable outcome for investors. Bondholders witnessed an impressive 325.3% gain over the initial issue price. To break it down, the redemption price was set at Rs 12,704 per unit, compared to the initial price of Rs 2,987 per unit. Investors also benefitted from an additional 2.5% annual interest income during the holding period. The redemption price was determined using a straightforward average of closing gold prices. The India Bullion and Jewellers Association (IBJA) published these prices for the three business days of October 17, 20, and 22, 2025.
Taxing the Returns
Understanding the tax implications of these bonds is crucial for investors. According to the Income-tax Act of 1961, the interest earned on SGBs is subject to taxation. The interest, which is fixed at an annual rate of 2.5%, is disbursed semi-annually directly to the investor's bank account. On the other hand, the capital gains tax arising from the redemption of these bonds is exempted for individual investors. Furthermore, those who held the bonds for the long term could enjoy indexation benefits. This provision helps to adjust the purchase price for inflation, which in turn reduces the taxable capital gains. These tax treatments make SGBs an attractive investment option for several people.
SGB Scheme Overview
The Sovereign Gold Bond (SGB) Scheme was introduced in November 2015 by the Government of India as an alternative to buying physical gold. These bonds, issued by the Reserve Bank of India (RBI) on behalf of the Central government, were valued in grams of gold. Investors were offered two main advantages: a fixed annual interest of 2.5% on the initial investment and the potential for capital appreciation, mirroring changes in gold prices. The primary goals of this scheme were to decrease India's dependence on importing physical gold, discourage gold hoarding, and encourage the channeling of household savings into financial assets.
Issuance Halts & Reasons
The government discontinued the issuance of new SGBs in October 2023. This decision was based on a few key factors. The scheme was largely seen as having met its initial objectives. Furthermore, the cost of managing and servicing these bonds had risen significantly. Another significant factor was the growing availability of other gold investment options, like Gold ETFs and digital gold. These alternatives satisfied the demand, reducing the need for periodic SGB issuances. Despite the cessation of new issuances, all existing bonds remain valid. Investors can choose to hold them until their maturity date or, if they prefer, opt for premature redemption, provided they adhere to the scheme's rules.
