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All You Need to Know About Sovereign Gold Bonds

Key points to consider before investing in gold via sovereign gold bonds.

  • Sovereign Gold Bonds are issued by the RBI on behalf of the government.
  • It is available every month for few days.
  • It is good for India's economy because we don't mine much gold rather import it. Thus by going digital we don't actually import that gold and save forex expense of the physical transaction. In the end we get back money as per the cost of gold at that time and not the actual gold.
  • This is the best way to invest in gold in digital form.
  • No risk of theft/steal as it is in your demat account and not physical.
  • Benefit is that we get 2.5% fixed interest paid semi-annually.
  • 8 years maturity period and 5 years of lock-in period. That means after 5th year you can encash that gold by paying tax on the profit made in these 5 years.
  • In case of premature redemption after the fifth year, the gains will be taxed at 20% post indexation.
  • RBI provides a buyback facility at the end of the fifth, sixth and seventh years.
  • If you hold them till 8 years maturity, the capital gains will be tax free. But tax will be there on the interest earned with it. This relaxation is only for individuals, not for trusts/institutions.
  • So, if going for 8 years then 20% net interest earned in 8 years and 3% saved on GST that's 23% benefit compared to buying phsyical gold.
  • For example if you had purchased 1 gram gold for 100 Rs, and after 8 years price of gold is 130 Rs then you make 130 + 23 = 153 Rs. While if it was phsyical gold then just 130 Rs. Also the 23 Rs extra is received like 3 Rs instant discount and then 2.5 Rs every 6 months which can be further used.
  • Average cost of purity 999 gold of last 3 days is considered as it's value upon maturity or withdrawal.
  • You can also buy sell them on the stock exchanges.
  • In case you sell before one year then gains (if any) are added to your gross income and taxed as per your slab rate.
  • After 1 year, the gains will be considered long-term and will be taxed at 10%.
  • Interest is directly paid in your bank account and is added to your income and taxed as per the slab.
  • However, no TDS applicable on the interest paid.
  • Loan provided by every bank against this bond.

Hope this was helpful!

- Ayush 🙂