In a move aimed at tightening the intended scope of tax benefits on Sovereign Gold Bonds (SGBs), the government has amended the Income Tax Act to withdraw the capital gains tax exemption for investors who purchase SGBs from the secondary market.
Announcing the change in the Budget, Finance Minister Nirmala Sitharaman said the exemption from capital gains tax on redemption of SGBs will now be available only to individuals who subscribe to the bonds at the time of original issue and hold them continuously until maturity.
The Budget amends Section 70(1)(x) of the Income Tax Act, which currently provides capital gains tax exemption on redemption of SGBs issued by the RBI under the Sovereign Gold Bond Scheme, 2015. According to the government, this led to an unintended situation where investors buying SGBs from the stock exchanges were also claiming the exemption upon redemption — a benefit that was originally meant only for primary subscribers.
The amendment will come into effect from April 1, 2026, and apply from assessment year 2026–27 onwards.
Why the clarification was needed
CBDT Chairman Ravi Agarwal termed the move a clarification rather than a policy shift.
“This is a clarification, not a change. The exemption from capital gains tax was always intended only for investors who subscribed to SGBs at issuance and held them till maturity. However, analytics showed that some investors who bought SGBs in the secondary market were also claiming this exemption, which was never the intention. This applies across all tranches of SGBs, not just the 2015 series,” he said.
What changes for investors
Until now, any investor holding SGBs till maturity could claim capital gains tax exemption on redemption, irrespective of whether they had subscribed to the original issue or bought the bonds later from the secondary market.
Post amendment, only original subscribers who hold the bonds for the full eight-year tenure will be eligible for the exemption.
All others — including secondary market buyers — will be taxed under normal capital gains provisions applicable to listed securities. Long-term capital gains (held for more than 12 months) will be taxed at 12.5%, while short-term capital gains is taxed as per income tax slab.
As per RBI rules, interest earned on SGBs continues to be taxable as per the Income Tax Act. No TDS is applicable, but the onus of tax compliance remains with the bondholder. Indexation benefits will continue to apply to long-term capital gains arising from transfer of bonds.
Nehal Mota, Co-Founder and CEO of Finnovate, said the change will materially alter investor behaviour around SGBs.
“With the current change, only original subscribers holding up to eight years till maturity will get capital exemption. This will likely deter short-term trading of SGBs, as there will be a decline in speculative activity due to the absence of a tax incentive to trade or hold SGBs bought from the secondary market.”
She expects trading volumes and price volatility in SGBs to reduce as speculative interest wanes.
What should investors do now?
With the tax arbitrage effectively removed for secondary market buyers, gold investing through SGBs will increasingly be driven by asset allocation rather than tax optimisation.
“Investing in gold will now be considered more from an asset allocation perspective rather than for tax benefits. Gold ETFs and FoFs are another option for investors looking to diversify their portfolios with gold. Disciplined, long-term gold investing as an asset class becomes more important than tax advantages,” Mota added.