The Sovereign Gold Bonds (2023-24 Series III) will be open for subscription from December 18 to December 22, allowing investors to utilize the precious metal as an investment avenue. The Reserve Bank of India (RBI) issues these gold bonds on behalf of the Government of India under the SGB scheme.
The issue price of these gold bonds is determined by linking it to the market price of gold in the bullion market. This is calculated by taking a simple average of the closing prices of 999 purity gold over the three working days preceding the issuance day. The India Bullion and Jewellers Association (IBJA) is the basis for these calculations and subsequently, the issue price for the upcoming tranche.
It is also important to note that the bonds are denominated in multiples of grams of gold, where each unit holds the value of one gram of gold at the market price. The available issue price will be reduced by Rs 50 per unit for online investors who pay through digital mode.
What does this mean for investors then? The interest applicable to SGB holdings is taxable. SGB investors are eligible for a 2.5% interest on their holdings over and above the market-linked return, but this interest is subject to tax. Additionally, the capital gains tax arising from the redemption of SGB to an individual is exempted. However, income tax assessees will be required to declare the amount of interest received in the income from other sources’ section when filing an ITR, and pay the income tax as per the applicable slab. SGB investments are exempt from capital gains tax when held till maturity, but are subject to long-term capital gains tax in the case of pre-mature withdrawal, i.e. before eight years from the date of entry.
Ultimately, Sovereign Gold Bonds are a popular and effective instrument for investing in gold, but it is important for investors to be aware of the tax implications associated with them. Therefore, it is advisable for investors to consider these factors and seek advice from financial professionals before making a decision.
