I had invested in Sovereign Gold Bonds in 2015-16. I received maturity payments in 2023-24. As per terms of issue, these bonds were exempt from long term capital gains tax on maturity. My question is: Am I required to declared long term capital gains on these bonds in my ITR2 for A. Y. 2024-25? If so, where? I do not find any provision in Schedule Capital Gains in ITR2 return.

Ans: Even if your long term gain doesn’t exceed 1 lakh and there is no capital gain applicable for the sold mutual funds, you need to show this gains during the filing of FY2021-22 and claim an exemption up to Rs 1 lakh.

Ans: If you purchase Sovereign Gold Bonds (SGBs) in the secondary market on BSE or NSE, and hold them till maturity for 8 years, the capital gains will still be non-taxable, provided the bonds were originally issued by the Reserve Bank of India (RBI).

The tax treatment of SGBs purchased in the secondary market is the same as that of SGBs purchased in the primary market. The exemption from capital gains tax applies to all SGBs that are held until maturity, regardless of whether they were purchased in the primary or secondary market.

However, if you sell the SGBs before the 8-year maturity period, you will be liable to pay capital gains tax. Short-term capital gains (if held for less than 3 years) will be taxed at your applicable income tax rate, while long-term capital gains (if held for more than 3 years) will be taxed at 20% with indexation benefit.

Ans: Understanding Long Term Capital Gains Tax for Senior Citizens
Congratulations on your upcoming milestone of turning 80 on 07 February 2024. It's a significant achievement and I appreciate the wisdom that comes with it. Let's discuss the tax implications for your long-term capital gains from mutual funds in the current financial year, 2023-24.

Income Tax Rules for Senior Citizens
In India, senior citizens (aged 60 and above) and super senior citizens (aged 80 and above) enjoy certain tax benefits. These include higher exemption limits and additional deductions. For super senior citizens, the income tax exemption limit is higher compared to regular taxpayers.

Long Term Capital Gains (LTCG) Tax
Long-term capital gains (LTCG) from equity mutual funds are taxed at 10% if the gains exceed Rs 1 lakh in a financial year. This tax is applicable irrespective of your age or income bracket.

Filing Income Tax Returns
Super senior citizens, aged 80 years and above, are generally not required to file income tax returns if their income is below the exemption limit. However, this exemption does not apply to taxable long-term capital gains.

Need to Pay LTCG Tax
Even though you will be 80 years old, you need to pay long-term capital gains tax if your gains exceed Rs 1 lakh. The exemption from filing returns based on age does not exclude you from paying taxes on capital gains.

Importance of Compliance
It's important to comply with tax laws to avoid any penalties or legal issues. Paying your LTCG tax ensures that you stay within the legal framework.

Role of Actively Managed Funds
Actively managed funds have the potential to provide higher returns, which could lead to higher long-term capital gains. This makes it crucial to plan your tax liabilities accordingly.

Benefits of Regular Plans
Investing through regular plans with the guidance of a Certified Financial Planner ensures that you receive expert advice. This can help you manage your investments and tax liabilities effectively.

Avoiding Real Estate and Index Funds
Real estate investments and index funds are not recommended in this context. Actively managed funds provide better management and potential returns, which align with your financial goals.

Professional Advice
Consulting with a Certified Financial Planner can help you navigate the complexities of tax laws. They can provide personalized advice based on your financial situation.

Importance of Planning
Effective financial planning includes managing your tax liabilities. By understanding the tax implications of your investments, you can make informed decisions.

Regular Review
Regularly reviewing your investment portfolio ensures that it aligns with your financial goals and tax planning needs. A Certified Financial Planner can assist in this process.

Conclusion
Even at 80 years of age, paying long-term capital gains tax is necessary if your gains exceed Rs 1 lakh. Compliance with tax laws is crucial for financial health. Consulting with a Certified Financial Planner can help you manage your investments and tax liabilities effectively.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You mentioned considering the option to redeem the bonds after 5 years. The government provides a redemption window starting from the fifth year. This is convenient if you need liquidity before the 8-year term ends.

The question is whether the capital gains from redeeming after 5 years will be taxable.

In short, yes, the gains will be taxable if you redeem before the 8-year period.

Let me explain in detail.

Tax Implications on Redemption Before 8 Years
SGBs enjoy a unique tax benefit when held for the full tenure of 8 years. Any capital gains from redeeming the bonds after 8 years are completely tax-free. However, if you opt to redeem the bonds after 5 years using the available exit window, the capital gains will not enjoy the tax-free benefit.

If you redeem after 5 years but before 8 years, the capital gains will be taxed as long-term capital gains (LTCG).

LTCG on SGBs is taxed at 12.5% if the gains exceed Rs. 1.25 lakh in a financial year.
Short-term gains (STCG) are taxed at 20% if redeemed within three years.
By redeeming after 5 years, the government treats it as an early exit, and the LTCG taxation applies.

Interest Income: Taxable Every Year
It’s also essential to note that the interest earned on SGBs, which is currently set at 2.5% per annum, is taxable every year. This interest is added to your income and taxed as per your income tax slab.

You cannot avoid taxation on the interest income. So, even though you are considering redeeming after 5 years, your interest income has already been taxed annually.

Should You Redeem After 5 Years?
While the option to redeem after 5 years offers flexibility, it's important to weigh the tax implications. Redeeming after 5 years will attract LTCG tax, which reduces your net gains.

If your financial needs permit, holding the bonds for the full 8-year tenure will maximize the tax benefits, allowing you to redeem them tax-free.

This strategy makes SGBs more effective as a long-term investment.

Final Insights
If you redeem after 5 years, you will pay LTCG tax at 12.5% on gains exceeding Rs. 1.25 lakh.

The interest you earn each year is taxable and added to your total income.

Holding the bonds for the full 8 years will help you avoid capital gains tax, as the redemption is tax-free at that point.

Opt for early redemption only if you need liquidity or other financial circumstances require it. Otherwise, holding the bonds for the entire tenure offers better tax efficiency.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment