The government of India have come up with a new batch of sovereign gold bonds and I see a lot of conversations about it on social and mainstream media. What are sovereign gold bonds? How can I invest in this instrument? Does it allow me any tax benefit? Please clarify.
Ans: Sovereign Gold Bonds (SGBs) are financial instruments issued by the Reserve Bank of India (RBI) on behalf of the Government of India. These bonds allow individuals to invest in gold without physically owning it. Instead of purchasing physical gold, investors buy these bonds issued by the government, which are linked to the market price of gold.
Here's how you can invest in Sovereign Gold Bonds:
1. Purchase During The Issuance Period: SGBs are issued periodically by the RBI, and investors can subscribe to them during specific issuance periods announced by the government. These periods are usually communicated through banks, designated post offices, stock exchanges, and other authorised agencies.
2. Application Process: You can apply for SGBs through eligible intermediaries like commercial banks, Stock Holding Corporation of India Ltd. (SHCIL), designated post offices, and recognised stock exchanges. The application process involves providing KYC (Know Your Customer) details and the required investment amount.
3. Allotment: Once you apply during the issuance period and fulfill the necessary criteria, the government allots the bonds based on the subscription.
Regarding tax benefits:
a. Capital Gains Tax Exemption: The main tax benefit of SGBs is that they qualify for long-term capital gains tax exemption if held until maturity (eight years). When you redeem or sell the bonds after this duration, the capital gains are exempt from tax.
b. Interest Income and Indexation Benefits: SGBs also offer an annual interest rate (fixed at the time of issuance) paid semi-annually. This interest income is taxable as per the income tax slab you fall under. However, the indexed cost of acquisition is allowed to be deducted from the capital gains arising on redemption, if any.
c. No Wealth Tax: Holding SGBs doesn’t attract wealth tax, which is an added advantage compared to physical gold holdings.
One must invest in SGBs, or, in any other asset class, only after consulting a financial advisor or tax consultant. This helps you get personalised advice regarding investments and tax implications depending on your family and wealth profile.
The attractiveness of SGBs depends on various factors, including prevailing interest rates, market conditions, and individual financial goals.