Budget 2026: Capital Gains Tax Rules for Sovereign Gold Bonds Set to Change

In the Union Budget 2026, the government proposed changes to the capital gains tax exemption available on Sovereign Gold Bonds (SGBs) issued by the Reserve Bank of India. The amendment seeks to clarify and standardise how the tax benefit applies across different SGB issuances.

Sovereign Gold Bonds are government-backed instruments linked to the price of gold and are issued by the RBI in multiple tranches. Until now, capital gains arising on redemption of these bonds at maturity were exempt from tax, creating clarity for investors across issuances.

Existing Tax Treatment of SGBs

Under the current provisions of the Income-tax Act, capital gains tax exemption applies to income earned on redemption of SGBs at maturity. Each tranche issued under the Sovereign Gold Bond Scheme, 2015, is treated as a separate issuance.

However, the law did not clearly distinguish between investors who subscribed at the time of original issue and those who purchased SGBs later through the secondary market. This led to varying interpretations of eligibility for tax exemption.

What Will Change Under the New Proposal

To address this, the government has proposed an amendment to Section 70(1)(x) of the Income-tax Act. Under the revised rule, the capital gains tax exemption will be available only if the investor subscribed to the SGB at the time of its original issue and held it continuously until redemption on maturity.

This effectively means that investors who buy Sovereign Gold Bonds from the secondary market will no longer qualify for the capital gains exemption when the bond matures. The tax benefit will be restricted strictly to original subscribers.

When Will the New Rule Apply

The amendment is proposed to come into effect from 1 April 2026. It will apply from the assessment year 2026–27 onwards and will impact all future tax filings under this category.

Investors holding SGBs should take note of whether their bonds were purchased directly at issuance or through market transactions, as this distinction will now determine tax treatment.

What This Means for Investors

The move aims to bring uniformity and clarity to the tax treatment of Sovereign Gold Bonds. It aligns the exemption with the original intent of encouraging long-term participation in the scheme rather than trading activity in the secondary market.

For investors, this change highlights the importance of understanding how and when financial instruments are purchased, as tax outcomes can differ significantly.

Conclusion

Budget 2026 introduces a clearer and more targeted approach to capital gains tax exemption on Sovereign Gold Bonds. By limiting the benefit to original subscribers who hold bonds until maturity, the government has narrowed the scope of the exemption while ensuring consistent application of tax rules across all SGB series.

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