Buying SGBs on the Exchange? You Might Owe More Tax Than You Think

Sovereign Gold Bonds (SGBs) are famous for being “tax-free” at maturity. But a small change in the fine print means thousands of investors buying on the secondary market are walking into a tax trap.

Whatchanged in this Budget:

The tax exemption on capital gains at redemption is no longer universal.

• Old Rule: Any individual holding SGBs until maturity enjoyed a full capital gains tax exemption. Even if the SGB was purchased from secondary market.
• New Rule: The exemption is now restricted strictly only to “Original Subscribers”. That means, tax exemption would be available only to those who acquired bonds in original issues from RBI, and not to those investors who acquired it in secondary market.

Strategic Impact This creates a two-tier market for SGBs, the one acquired in the secondary market being not eligible for exemption and the one originally issued by RBI held by investor till maturity eligible for exemption on capital gains for investors looking to park surplus cash in gold, “buying the dip” on the exchange just became more expensive, even if held till maturity.