How Much Tax Will You Pay on Selling SGB Purchased From the Secondary Market?

The government announced its decision on February 1, 2025, to discontinue the Sovereign Gold Bond (SGB) scheme due to high borrowing costs. Since its launch in 2015, the scheme aimed to reduce physical gold imports while offering investors gold-linked returns along with semi-annual interest payments.

With no new issuances planned, many investors turned to the secondary market to buy SGBs. While primary market taxation was straightforward, secondary market purchases require a different approach when calculating taxes on redemption and maturity.

Sovereign Gold Bond (SGB) Taxation

Sovereign Gold Bonds (SGBs) have a maturity period of 8 years, with an option for premature redemption after 5, 6, or 7 years. While early redemption offers flexibility, understanding the tax implications is crucial before making a decision. Let’s break down the tax treatment of SGBs in 3 different scenarios:

Scenario 1: Holding SGBs Until Maturity (8 Years)

If an investor holds SGBs until maturity (8 years), the capital gains on redemption are entirely tax-free for individuals.

This is a significant tax advantage, as gains from price appreciation do not attract any tax liability.

Scenario 2: Premature Redemption After 5, 6, or 7 Years (Through RBI)

Investors who redeem SGBs through RBI’s early redemption windows (5, 6, or 7 years) also enjoy tax-free gains.

The Income Tax Act provides an exemption for individuals redeeming SGBs through RBI, ensuring they are not subject to capital gains tax.

Scenario 3: Selling SGBs in the Secondary Market (Before Maturity)

If SGBs are sold before maturity in the stock market, the taxation depends on the holding period. Short-Term Capital Gains (STCG) apply if held for less than 12 months and gains are taxed as per the investor’s income tax slab rate.

Long-Term Capital Gains (LTCG) apply, if held for more than 12 months, gains are taxed at 12.5% without indexation benefits.

Conclusion

Understanding the tax implications of SGBs, especially when bought from the secondary market, is crucial for making informed investment decisions. Holding SGBs until maturity offers tax-free gains, while premature redemption through RBI is also exempt from capital gains tax.

However, selling in the secondary market attracts capital gains tax based on the holding period, with the option to use indexation benefits for tax savings. Investors should carefully assess their investment horizon and tax impact before making any decisions.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.