COURTKUTCHEHRY SPECIAL ON SOVERING GOLD BONDS TAX IMPACT
Budget 2026: New Tax Rules for Sovereign Gold Bonds Limit Exemption to Original Buyers Holding till Maturity
Secondary Market Investors Face Capital Gains Tax on Redemption from April 2026
Government Seeks to Align SGB Scheme with Original Intent, Impacting Retail and Institutional Investors
By Our Business Reporter
New Delhi: February 01, 2026:
The Union Budget 2026 has introduced a major change in the taxation of Sovereign Gold Bonds (SGBs), a popular investment instrument backed by the Government of India. Starting April 1, 2026, the capital gains tax exemption on redemption of SGBs will apply only to individuals who purchased the bonds directly from the Reserve Bank of India (RBI) during the original issuance and held them until maturity. This amendment, part of the Finance Bill 2025, is expected to significantly impact investors who rely on secondary market purchases.
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What Changes in Tax Rules Mean
- Current Rule: All SGB holders, whether they bought at issuance or in the secondary market, enjoy tax-free redemption at maturity.
- New Rule (from April 1, 2026): Only original subscribers who hold bonds till maturity will get tax-free redemption.
- Secondary Market Investors: Those who buy SGBs on stock exchanges will have to pay capital gains tax when bonds are redeemed.
Why the Government Made This Change
- Original Intent of Scheme: The SGB scheme was designed to encourage long-term savings in gold through RBI issuances, not speculative trading.
- Uniform Application: Each issuance is treated as a separate series. The government wants to ensure tax benefits apply only to genuine long-term investors.
- Revenue Considerations: Limiting exemptions could increase tax collections from secondary market transactions.
Impact on Investors
- Retail Investors: Many individuals who bought SGBs in the secondary market for tax-free gains will now face capital gains tax.
- Institutional Investors: Mutual funds and large investors may reconsider their strategies, as secondary market premiums could vanish.
- Market Prices: Analysts warn that premiums on secondary market SGBs may decline sharply, reducing liquidity.
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Expert Opinions
- Deepak Shenoy, Capitalmind: Called the change “very negative” for secondary market investors, noting that many accumulated SGBs expecting tax-free maturity.
- Chartered Accountants: Say the move aligns with the government’s intent but could discourage participation in secondary markets.
- Wealth Advisors: Suggest investors focus on primary issuances to retain tax benefits.
Broader Context
- SGBs vs Physical Gold: SGBs have been attractive due to interest income and tax-free redemption, unlike physical gold or ETFs.
- Global Practices: Few countries offer tax-free redemption on gold-linked securities, making India’s scheme unique.
- Policy Direction: The government is tightening rules across investment products to reduce misuse of exemptions.
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Conclusion
The Union Budget 2026’s amendment to SGB taxation is a turning point for gold investors. While original subscribers continue to enjoy tax-free redemption, secondary market buyers will face capital gains tax, potentially reshaping demand and pricing. Investors must now carefully plan their gold investments, focusing on primary issuances to maximize benefits.
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