Sovereign Gold Bond (SGB) Known / Unknown
- on Jan 30, 2023
What is Sovereign Gold Bond?
Sovereign Gold Bonds (SGBs) are a type of investment instrument that is issued by the government of India. They are denominated in grams of gold and can be bought and sold like any other bond on the stock exchanges.
The main advantage of investing in SGBs is that they provide a safe and convenient way to own gold, while avoiding the risks and costs associated with physical gold ownership. SGBs are issued by the Reserve Bank of India (RBI) on behalf of the Government of India, and are backed by the government’s credit.
The Bonds are issued in denominations of one gram of gold and in multiples thereof. The minimum investment in the bond is one gram with a maximum limit of subscription of 4 Kg for an individual, 4 Kg for a Hindu undivided family (HUF) and 20 Kg for trusts and similar entities notified by the government from time to time.
The SGBs have a tenure of 8 years and the interest rate is fixed by the government and is paid semi-annually. The interest rate is currently 2.5% per annum. The bonds can be held in both physical and demat form, just like other securities.
SGBs offer an alternative to physical gold and can be used as collateral for loans. The capital gains tax arising on redemption of SGB to an individual has been made tax free. These bonds are eligible for conversion into demat form, thus eliminating the risk of loss of bonds due to theft or loss in transit.
Overall, SGBs are a good investment option for those looking for an alternative to physical gold and for those who want to earn interest on their gold investment.
How to purchase SGB?
There are several ways to purchase Sovereign Gold Bonds (SGBs):
Through banks: Most nationalized and private banks offer the facility to purchase SGBs. You can visit your bank branch and fill out the necessary forms and documents, and make the payment for the bond.
Through Stock Exchanges: SGBs can also be bought and sold on stock exchanges like NSE and BSE. You can purchase SGBs through a registered broker on the stock exchange.
Through Post Offices: SGBs can be purchased from designated post offices across the country.
Online: You can purchase SGBs online through the Reserve Bank of India (RBI) or through the online platforms of designated banks or stock exchanges.
In order to purchase SGBs, you will need to provide the following documents:
You will also need to pay the required amount in cash or through electronic transfer.
- PAN card
- Aadhaar card
- Bank account details
- Address proof
It’s important to note that the SGBs are issued only during a specified period of time, announced by the government of India. It’s also worth noting that the investment limit of 4 kg per fiscal year for an individual and 20 kg for trusts and similar entities.
In summary, purchasing SGBs can be done through banks, stock exchanges, post offices and online, you will need to provide the necessary documents and make the payment, the investment limit is 4 kg per fiscal year for an individual, the bond has an 8 years tenure and the interest rate is fixed by the government and is paid semi-annually.
Can we sell SGB bonds before maturity?
Yes, you can sell Sovereign Gold Bonds (SGBs) before maturity. SGBs can be traded on stock exchanges like NSE and BSE, just like other securities. You can sell your SGBs to other investors on the stock exchange. The price at which you can sell your SGBs will depend on the current market conditions and the demand for the bond.
It’s important to note that the price of the SGBs on stock exchanges may not always be the same as the price of gold in the market, as the price of SGBs is also influenced by factors such as interest rates and supply and demand.
When selling SGBs before maturity, you should also be aware of any applicable taxes or charges. The capital gains tax arising on redemption of SGB to an individual has been made tax-free.
Overall, while it is possible to sell SGBs before maturity, it’s important to understand the risks and benefits of doing so. Before making a decision to sell, it’s advisable to consult with a financial advisor and consider factors such as current market conditions, taxes, and your personal financial goals.
What are the tax benefits of SGB bonds?
Sovereign Gold Bonds (SGBs) offer the following several tax benefits to investors:
Capital gains tax-free: The capital gains tax arising on redemption of SGB to an individual has been made tax-free. This means that any profit made on the sale of SGBs will not be subject to capital gains tax.
Tax-free interest income: The interest earned on SGBs is also tax-free.
Eligible for indexation benefit: The long-term capital gains arising to any person on transfer of bonds is eligible for indexation benefit.
Tax benefits under Section 80C: Investment in SGBs is eligible for tax benefits under Section 80C of the Income Tax Act, which allows for deductions of up to Rs 1.5 lakh from taxable income for investments made in specified instruments.
Exempt, Exempt, Exempt (EEE) status: The investment in SGBs is eligible for EEE status, which means that the investment amount, interest earned, and maturity proceeds are all tax-free.
It’s important to note that the tax laws are subject to change, and investors should consult with a tax advisor to understand the specific tax implications of investing in SGBs.
Overall, SGBs offer a safe and convenient way to own gold while also providing tax benefits. These bonds are a good investment option for those looking to earn tax-free interest income and to save on capital gains tax.