Know the Sovereign Gold Bond Tax Benefits
15 February, 2023
For many Indians, gold is one of the first things that comes to mind when they think about investing. Whether as jewellery that doubles as cultural tokens or artefacts and bars for financial security, gold has always been a popular investment choice in India. Keeping this in mind, the Government of India has introduced Gold Bonds that allow investors to invest in dematerialised gold. In addition, investing in Gold Bonds also allows you to enjoy tax benefits to save money. To learn more about Sovereign Gold Bonds and the associated tax-related perks, continue reading.
What are Sovereign Gold Bonds?
As mentioned above, Sovereign Gold Bonds are issued by the Government of India; hence, the name. They are issued periodically by the Reserve Bank of India and are offered to investors via banks, financial institutions, post offices, and other channels. The Gold Bonds allow you to invest in the metal in a dematerialised form without having to deal with the hassle of owning physical gold.
The Gold Bonds are denominated in grams of gold. The price is determined at the time of each tranche as per the average price. Usually, the RBI sets the price at a rate slightly lower than that prevailing in the market. The value of the Gold Bond fluctuates according to the market price of gold. Thus, Gold Bonds enable investors to participate in gold price movement without owning physical gold.
What are the Tax Benefits of Sovereign Gold Bonds?
Sovereign Gold Bond tax benefits occur at three levels. Firstly, you receive interest at the rate of 2.5% on your Gold Bond holdings. This interest is entirely taxable, that too, at the peak rate of tax. Thus, if you are in the 30% tax bracket, you will have to pay tax on whatever interest you earn via Gold Bonds. Note that since tax Deducted at Source (TDS) is not applicable on Gold Bonds, you will have to show this income when you file your returns and pay advance tax accordingly.
Regarding capital gains, Sovereign Gold Bonds are redeemed at the end of 8 years. Any capital gains you earn at the end of 8 years will be considered entirely tax-free. The government extends this tax benefit to encourage investors to invest in Gold Bonds instead of physical gold.
However, the tax treatment differs if you exit your Gold Bond investment earlier. There are two popular ways to exit a Gold Bond investment; the first is via the early redemption window at the end of 5 years, and the second is to sell your bonds in the secondary market. In both cases, capital gains will be taxable according to the usual definition of short-term and long-term capital gains. If it is the former, the rate applicable will be at its peak. If it is the latter, then the investor can choose between a flat tax rate of 10% or 20% after considering indexation.
Thus, overall, investing in Sovereign Gold Bonds and holding on till the redemption period is over could result in tax benefits that help you save a considerable sum while filing taxes. Plus, you can easily store your Gold Bonds without having to deal with the worry of storing physical gold.
If you want to store Gold Bonds with utmost ease, you can always rely on the Demat Accounts offered at HDFC Bank. At HDFC Bank, you can open a Demat Account in less than 10 minutes. Plus, your demat AMC is free for the first year.
There are many advantages of holding your Gold Bonds in a demat account.
You can get a single view of your investments, be it bonds, shares, mutual funds or insurance policies
Transactions are hassle-free if you have your bonds in demat form
Your bonds are safe, with no risk of theft or damage
If you wish to convert your physical Sovereign Gold Bonds into demat, you can submit a dematerialisation request to the bank with the physical copies of the bonds. The bank will upload the demat request on the RBI’s e-Kuber portal to initiate the dematerialisation process. Once the process is complete, the SGBs will reflect in your demat account.
Click here to open a Demat Account at HDFC Bank today!
To know more about How to invest in Gold in 3 different ways? Visit here
*Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.
