Sovereign Gold Bonds: An ideal alternative to physical gold in 2024?
Sovereign Gold Bond Upcoming Issues: Scheme Likely to be Discontinued by FY26
The Sovereign Gold Bond (SGB) scheme, launched in 2015 to reduce India’s reliance on physical gold imports, is reportedly set to be discontinued from the financial year 2025-26. This move comes as the government focuses on achieving fiscal consolidation and reducing its debt-to-GDP ratio.
Despite an allocation of ₹18,500 crore for SGBs in the FY25 Budget, no new tranches have been announced for FY25, marking a sharp drop from the interim Budget allocation of ₹26,852 crore. The Reserve Bank of India (RBI) last issued SGBs in February 2023, amounting to ₹8,008 crore.
A senior government official, as cited in reports, explained that the scheme has “outlived its purpose” and poses a fiscal challenge due to obligations to repay gold-equivalent values at maturity, coupled with 2.5% annual interest payouts. The government’s plan to sustainably reduce the debt-to-GDP ratio, projected to decline to 56.8% in FY25 from 58.2% in FY24, further supports this decision.
Finance Minister Nirmala Sitharaman is expected to provide more details in the FY26 Budget, outlining a fiscal strategy aimed at keeping the deficit below 4.5% and addressing long-term liabilities. Investors looking to purchase Sovereign Gold Bonds should closely monitor upcoming announcements, as the scheme may see limited tranches in its final year.
For more updates on the SGB upcoming issues, stay tuned to RBI notifications and the latest financial reports.
Growing up as an Indian, we all know that the value gold has in the country is beyond description! However, from an investment perspective, most people prefer digital gold over them. Why?
Holding physical gold as an investment comes with several complexities unlike its digital counterpart, such as storage security, value depletion and deduction of making charges.
If gold is still an entity that needs to be a part of your investment portfolio, digital golds are an effective replacement to physical gold. And if you are looking for a government backed plan to do so, SGBs are the most reliable option. In this blog we help you with everything you need to know about Sovereign Gold Bonds.
What are sovereign gold bonds?
Sovereign Gold Bonds are an alternative to physical gold introduced by the Reserve bank of India. For people who want to avoid the inherent risk and value depletion that exist in holding physical gold, SGBs are the way to go. With the market witnessing an increased decline in the demand for physical gold, SGBs are making their way to being the rightful substitute for one of the most valued possessions in India.
Should you invest in Sovereign Gold Bonds?
If you are looking to diversify your portfolio using a low-risk and safe investment vehicle, there is nothing more suitable than SGBs. The charges are comparatively very minimal for both buying and selling digital gold and since they are demat form, maintaining them is nothing more than a walk in the park.
Benefits of Sovereign Gold Bonds in India
- Accessibility for the diversity
SGBs come with easy eligibility criterias making it accessible for almost every individual in the country. Indian resident individuals, charitable institutions, trusts and universities are eligible to invest in the scheme. You may also invest on the behalf of a minor.
- Exemption from tax
The interest gained from SGBs is taxable under the IT Act, 1961. Long-term capital gains are offered indexation benefits and capital gain taxes are mostly exempted.
- Safety
Sovereign Bonds does not contain the risks associated with physical gold and lacks designing and wastage charges.
- Tradability
You may trade gold sovereign bonds on stock exchanges. For example, after five years of investment, they can be traded on any recognised stock exchange.
- Collateral for loans
In most cases SGBs can be used as collateral for availing loans, similar to a gold loan.
Sovereign Gold Bonds Interest rates and tenures
The present interest rate for Sovereign Gold Bonds is 2.50% per annum on your principal investment and is paid out twice a year during a tenure of 8 years. Interest earnings will be directly deposited into the provided account and these returns are based on the market price of gold of the time. Even though the bond matures after eight years, investors also have the option to exit from the fifth year onwards.
How to invest in Sovereign Gold Bonds sgb?
Here is a list of some of the most preferred ways to invest in SGBs in India.
- Through online Banking
You will be able to invest in SGBs either through your bank’s online portal or through their mobile app if any.
- Through Physical Banking
You can also invest in SGBs by visiting your nearest bank branch or post office.
- From the RBI website
RBI Retail Direct facilitates direct purchasing of SGBs from the official website.
- From SHCIL
The Stock Holding Corporation of India Limited also helps investors to invest in SGBs.
- From stock exchanges
You can buy SGBs from recognised stock exchanges like the NSE or BSE.
SGB Taxation: Understanding Tax Implications on Sovereign Gold Bonds
Sovereign Gold Bonds (SGBs) are a popular investment option for those looking to gain exposure to gold in a more secure and convenient manner. However, like any investment, it’s essential to understand the tax implications associated with SGBs. Taxation on SGBs varies based on how long the bonds are held and whether they are sold prematurely in the secondary market. In this section, we’ll break down the different tax scenarios to help you make informed decisions regarding your SGB investment.
Taxation of Interest Earned on SGBs:
The interest earned on Sovereign Gold Bonds is taxable as income under the head “Income from Other Sources.” The interest is subject to tax at the investor’s applicable tax rate based on their total income. It’s important to note that the interest earned on SGBs is paid semi-annually, and the tax is levied on each interest payment.
Taxation of Capital Gains on SGBs:
One of the major benefits of investing in SGBs is the tax treatment of capital gains. The tax treatment on the capital gains depends on how long the SGBs are held by the investor:
- Long-Term Capital Gains (LTCG): If the SGBs are held for more than 12 months, they qualify as long-term capital assets. As per the latest tax regulations effective from July 23, 2024, long-term capital gains on SGBs are taxed at a rate of 12.5%.
- Short-Term Capital Gains (STCG): If the SGBs are sold before 12 months, the gains are considered short-term. These gains are taxed at the applicable income tax slab rate of the investor, which can be as high as 30%, depending on their income level.
Exemption on Capital Gains if Held Until Maturity:
A unique feature of Sovereign Gold Bonds is that if the SGBs are held until maturity (8 years), the capital gains tax on maturity is exempt. This makes SGBs an attractive option for long-term investors looking for tax-efficient exposure to gold.
Tax Deducted at Source (TDS) on SGBs:
One of the advantages of investing in SGBs is that they are not subject to Tax Deducted at Source (TDS). This means that no tax is deducted at the time of interest payment, allowing the investor to receive the entire interest amount directly. However, investors are still required to report the interest income while filing their income tax returns.
Early Redemption of SGBs:
SGBs come with a fixed tenure of 8 years, but investors can opt for early redemption after the 5th year on the interest payment date. If you choose to redeem your SGB early, the tax treatment on the capital gains will follow the same rules outlined above, depending on whether the redemption is after 12 months (LTCG) or within 12 months (STCG).
Sovereign Gold Bond Certificate Download:
A holding certificate will be issued upon issuance of SGBs. If an individual has chosen to receive the physical certificate, it will be sent to the registered email address; otherwise, it will be reflected in their Demat account on the issuance date. The customers can also collect the holding certificate from the bank branch.
Conclusion:
Sovereign Gold Bonds are a game changer for people looking to diversify their portfolio with gold investments. With the risks and complexities that come with physical gold, SGBs are really the next step in gold investments.
However, if you’re still looking for a safe platform that gives higher returns than conventional investment vehicles, consider tapping into Tap Invest and explore the world of elite fixed income instruments.
FAQs On Sovereign Gold Bonds:
1. Are Sovereign Gold Bonds tax free?
The yearly interest earned on Sovereign Gold Bonds (SGBs) at a rate of 2.5% is subject to taxation according to your income tax slab. Nonetheless, upon maturity, withdrawing the lump sum does not incur any capital gains tax.
2. Can NRIs invest in Sovereign Gold Bonds?
No NRIs are not eligible to invest in SGBs.
3. Are Gold Bonds safe?
Backed by RBI, SGBs are one of the safest investments in India.
4. When are the 2023-2024 dates for SGBs?
The issuance date for the upcoming SGB is 21st February 2024 and the subscription period is from 12 February 2024 – 16 February 2024.
