How Sovereign Gold Bonds Are Taxed in India for AY 2026-27

SGB Taxation in India: Complete Guide for AY 2026-27

Sovereign Gold Bonds (SGBs) were among the most tax-efficient gold investment options in India until Budget 2026 tightened the rules. For years, the full maturity redemption was tax-free for all holders. That blanket exemption is gone. From April 1, 2026, only original subscribers who hold continuously for 8 years get a capital gains exemption at maturity. Everyone else, whether you bought on the secondary market or redeemed prematurely through RBI, pays capital gains tax.

This guide covers every tax scenario for SGB holders filing returns for AY 2026-27 (Tax Year 2026-27) and beyond: interest income, maturity redemption, premature redemption, stock exchange sale, and secondary market purchases. Each section includes the applicable section numbers under both the Income Tax Act 1961 (for income earned up to March 31, 2026) and the Income Tax Act 2025 (for income from April 1, 2026 onwards).

What Is a Sovereign Gold Bond?

Sovereign Gold Bonds are government securities issued by the Reserve Bank of India on behalf of the Government of India. Each unit represents one gram of gold. Key features:

• Tenure: 8 years, with an option for premature redemption after 5 years on interest payment dates
• Interest: 2.5% per annum on the initial investment amount, paid semi-annually
• Denomination: Denominated in grams of gold (minimum 1 gram, maximum 4 kg per individual per financial year at the time of issuance)
• Listing: Traded on stock exchanges (NSE, BSE) after issuance
• Redemption value: Based on the simple average of the closing price of gold of 999 purity of the previous three business days from the date of redemption, as published by the India Bullion and Jewellers Association (IBJA)

RBI last issued SGBs in Tranche IV of FY 2023-24 (February 2024). No new tranches have been announced. Existing SGBs continue to be traded, redeemed, and taxed according to current rules.

Interest Income: 2.5% Taxed at Slab Rate

SGB interest is straightforward. You receive 2.5% per annum on the initial investment (the issue price, not the current gold price), paid in two half-yearly instalments.

Tax treatment:

• Taxable as "Income from Other Sources" under both the old and new regimes
• Taxed at your applicable slab rate
• No TDS is deducted on SGB interest
• Report in Schedule OS of your ITR
• Under ITA 1961: taxable under the residuary head, Section 56
• Under ITA 2025: taxable under the corresponding head of income

Example: You subscribed to SGBs worth Rs 5,00,000 (100 grams at Rs 5,000/gram). Annual interest = Rs 5,00,000 x 2.5% = Rs 12,500, paid as Rs 6,250 every six months. If your total income puts you in the 30% bracket under the new regime, tax on SGB interest = Rs 12,500 x 30% = Rs 3,750 per year.

The interest is taxable every year, regardless of whether the bond has matured or not. This is a cash-basis accrual, so you report it in the year you receive it.

Capital Gains on Maturity: Old Rules vs New Rules

This is the biggest change from Budget 2026. Here is how the maturity exemption worked before and how it works now:

What "Original Subscriber" Means

The exemption under Section 70(1)(x) of ITA 2025 applies exclusively to an investor who:

1. Subscribed to the SGB directly during an RBI-issued tranche
2. Held the bond continuously without transferring it
3. Redeems the bond at the end of the full 8-year maturity period

If you inherited an SGB, received it as a gift, or purchased it on the stock exchange or through an OTC transfer, you are not an original subscriber. The exemption does not apply to you, even if you hold it until maturity.

Premature Redemption Through RBI: Now Taxable

RBI allows premature redemption of SGBs after 5 years from the date of issue, on interest payment dates. Before Budget 2026, there was ambiguity about whether the maturity exemption covered premature redemption. Some taxpayers treated it as exempt; the CBDT's position was less clear.

Budget 2026 settled the question: premature redemption is taxable for everyone, including original subscribers.

Tax treatment (from April 1, 2026):

• If held for more than 12 months (which it will be, since the minimum holding is 5 years for premature redemption): LTCG at 12.5%, no indexation
• Cost of acquisition = issue price paid at the time of subscription
• Redemption value = gold price-linked payout from RBI on the redemption date

Example: You subscribed to SGBs at Rs 4,500 per gram (50 grams, total Rs 2,25,000) in January 2021. You opt for premature redemption in January 2026 when the gold price is Rs 7,800 per gram. Redemption proceeds = Rs 7,800 x 50 = Rs 3,90,000. LTCG = Rs 3,90,000 - Rs 2,25,000 = Rs 1,65,000. Tax at 12.5% = Rs 20,625.

Under the old rules (ITA 1961), the same transaction would have attracted LTCG at 20% with indexation, which could have resulted in a lower tax amount depending on the cost inflation index.

Sale on a Stock Exchange

SGBs are listed on NSE and BSE. You can sell your bonds on the exchange at any time during market hours, subject to liquidity. The tax treatment depends on the holding period.

Held More Than 12 Months (LTCG)

• Taxed at 12.5% flat rate, no indexation
• Under ITA 2025, SGBs are treated as unlisted bonds/debentures for capital gains purposes when sold on the exchange (they are not "listed equity" for the purpose of the 10% LTCG exemption under Section 112A or its ITA 2025 equivalent)
• No exemption under Section 70(1)(x) because a stock exchange sale is not a maturity redemption by the original subscriber

Held 12 Months or Less (STCG)

• Taxed at your applicable slab rate
• Reported under "Short-term Capital Gains" in Schedule CG of the ITR

Practical note: SGB liquidity on exchanges can be thin. The bid-ask spread is sometimes wide, especially for older tranches approaching maturity. Check the order book before placing a sell order.

Secondary Market Buyer: Full Tax Exposure

If you bought SGBs on the stock exchange or through an OTC transfer (not during the original RBI issuance), you are a secondary market buyer. Budget 2026 removed the maturity exemption for secondary market buyers.

Your tax exposure:

Cost of acquisition for a secondary buyer = purchase price paid on the exchange or in the OTC transaction (not the original issue price).

This is a significant change. Before Budget 2026, a common strategy was to buy SGBs near maturity on the exchange at a discount to gold price, hold to maturity, and claim the full exemption. That arbitrage no longer works.

Worked Example: Original Subscriber vs Secondary Buyer

Scenario: SGB maturing in August 2026

Bond details:

• Issue price: Rs 3,200/gram (issued August 2018)
• Maturity date: August 2026 (8 years)
• Gold price at maturity: Rs 7,500/gram
• Units held: 20 grams

Case A: Ravi (Original Subscriber)

Ravi subscribed in August 2018 at Rs 3,200/gram and held continuously for 8 years.

• Redemption value: 20 x Rs 7,500 = Rs 1,50,000
• Cost of acquisition: 20 x Rs 3,200 = Rs 64,000
• Capital gain: Rs 1,50,000 - Rs 64,000 = Rs 86,000
• Tax: Rs 0 (exempt under Section 70(1)(x) as original subscriber holding to maturity)
• Total interest earned over 8 years: Rs 64,000 x 2.5% x 8 = Rs 12,800 (taxed annually at slab rate in respective years)

Case B: Priya (Secondary Market Buyer)

Priya bought the same SGB series on NSE in March 2024 at Rs 6,100/gram. The bond matures in August 2026.

• Redemption value: 20 x Rs 7,500 = Rs 1,50,000
• Cost of acquisition: 20 x Rs 6,100 = Rs 1,22,000
• Capital gain: Rs 1,50,000 - Rs 1,22,000 = Rs 28,000
• Holding period: March 2024 to August 2026 = ~29 months (LTCG applies)
• Tax: Rs 28,000 x 12.5% = Rs 3,500
• Interest received (March 2024 to August 2026, approximately 5 semi-annual payments): taxed at slab rate in each year

Case C: Amit (Original Subscriber, Premature Redemption)

Amit subscribed in January 2021 at Rs 4,900/gram (10 grams). He opts for premature redemption in January 2026 (5 years).

• Redemption value: 10 x Rs 7,500 = Rs 75,000
• Cost of acquisition: 10 x Rs 4,900 = Rs 49,000
• Capital gain: Rs 75,000 - Rs 49,000 = Rs 26,000
• Tax: Rs 26,000 x 12.5% = Rs 3,250 (premature redemption is taxable post-Budget 2026)

How to Report SGB Income in Your ITR

Interest Income

Report SGB interest in Schedule OS (Income from Other Sources) of your ITR. Use ITR 2 if you have capital gains; ITR 1 is sufficient if you only have interest income from SGBs (along with salary or house property).

Since there is no TDS on SGB interest, ensure you include it yourself. Cross-check with your AIS (Annual Information Statement) on the income tax portal: SGB interest sometimes appears under "Interest from Securities" in AIS.

Capital Gains

Report capital gains from SGB sale, premature redemption, or maturity (for secondary buyers) in Schedule CG (Capital Gains) of your ITR.

• LTCG (>12 months): Under the section for "Long-term capital gains on bonds/debentures" at 12.5%
• STCG (≤12 months): Under short-term capital gains taxable at slab rates
• For original subscribers claiming maturity exemption: report the transaction and claim exemption under Section 70(1)(x). Do not simply skip reporting; the transaction should be disclosed with the exemption claimed

Which ITR Form?

• ITR 1 (Sahaj): Only if you have SGB interest income and no capital gains from SGBs
• ITR 2: If you have capital gains from SGB sale, premature redemption, or taxable maturity
• ITR 3: If you also have business income

If you hold SGBs in a demat account, the maturity or sale details will typically reflect in your broker's capital gains statement and in AIS. Reconcile both before filing.

This post was verified against the RBI Sovereign Gold Bond Scheme FAQs, Section 47(viib) of the Income Tax Act 1961, Section 70(1)(x) of the Income Tax Act 2025, Finance Act 2026 amendments to SGB taxation, CBDT notifications on capital gains treatment (incometaxindia.gov.in), and the ITA 2025 concordance table for section mapping.

Frequently Asked Questions

Is TDS deducted on Sovereign Gold Bond interest?

No. The 2.5% annual SGB interest is paid without TDS, but it is fully taxable at your slab rate as income from other sources in the year you receive it. Because nothing is deducted, the interest is easy to miss, so check the interest entries in your AIS and report the full amount in Schedule OS of your return.

I bought SGBs on the stock exchange. Is my maturity payout tax-free?

Not under the Budget 2026 rules described in this guide. The maturity exemption is limited to original subscribers who bought in an RBI tranche and held continuously until the 8-year maturity. A secondary market buyer pays capital gains tax on the difference between the redemption value and the price paid on the exchange, at 12.5% without indexation if held for more than 12 months.

Do I lose the maturity exemption if I inherited or was gifted SGBs?

As this guide explains, the restricted exemption applies only to an investor who subscribed directly at issue and held the bond without any transfer. A bond received by inheritance or gift is not in the original subscriber's name, so the exemption is not available even if you hold it until maturity. Keep the original issue documents, since cost and holding period rules still matter for computing the gain.

How is profit on selling SGBs on NSE or BSE taxed?

If you sell listed SGBs after holding them for more than 12 months, the gain is long-term and taxed at 12.5% without indexation. If you sell within 12 months, the gain is short-term and taxed at your slab rate. Sale on the exchange never qualifies for the maturity exemption, whether or not you were an original subscriber.

Which ITR form should I use if I have SGB income?

If your only SGB income is interest and you have no capital gains, ITR-1 can work if you are otherwise eligible. Any sale, premature redemption or taxable maturity means capital gains, so you need ITR-2, or ITR-3 if you also have business income. Even an exempt maturity redemption should be disclosed in Schedule CG with the exemption claimed, not left out.