Selling SGB at peak prices: Understanding taxation impact on SGB!

Sovereign Gold Bonds present investors with a range of advantages, including fixed interest payments, safety and security, no storage costs, liquidity, exemption from making charges, and access to a loan facility.

Gold has long been a favourite investment option among Indians, who have various avenues to invest in this precious metal. Traditionally, individuals have the option to invest in gold physically by purchasing jewellery, coins, or bars. In recent years, digital platforms have also emerged as a convenient way to invest in gold, allowing investors to buy and sell gold electronically.

Additionally, some investors prefer to invest indirectly in gold by purchasing stocks of jewellery companies. These stocks are driven by the performance of the jewellery industry and can provide exposure to the gold market.

However, one of the most common and preferred ways of investing in gold among investors is through Sovereign Gold Bonds (SGBs). These government-backed bonds offer investors the opportunity to invest in gold in a convenient and secure manner. SGBs are issued periodically by the Government of India and are denominated in grams of gold. They provide investors with the benefits of gold ownership, such as price appreciation and interest payments, without the hassle of physical storage. This makes SGBs an attractive option for individuals looking to diversify their investment portfolio with exposure to gold.

With gold prices reaching an all-time high of over 75,000 per 10 grams on April 16, 2024, there's speculation in the market about a surge in bids for selling sovereign gold bonds (SGB) from the August and September 2024.

When considering selling your Sovereign Gold Bonds (SGB), it's essential to understand the taxation implications, which consist of two components: capital gains and interest. According to SGB investment terms, capital gains are exempted if the bonds are held until maturity.

However, the interest earned on SGBs is treated differently. It is added to your total income and taxed according to your applicable tax bracket. Therefore, while you may enjoy tax benefits on capital gains, the interest portion of your SGB investment will be subject to taxation based on your income level.

To understand the tax implications, let's consider two scenarios.

Scenario 1:

If you invested Rs 2.92 lakhs (100 units) in the 2016 Series II Bonds and offered them for redemption to the RBI, you would receive a redemption price of Rs 7.24 lakh. This includes Rs 64,152 in interest, along with Rs 6.6 lakh for the gold value. Since you held the bonds until maturity(8 years), you won't have to pay tax on the Rs 6.6 lakh received.

Scenario 2:

The interest received bi-annually is added to your income and taxed according to your tax slab. For example, if you're in the 30 per cent tax bracket, you'll need to pay tax on the SGB interest at 30 per cent. Include this interest in the 'other income' column in your tax return to calculate and pay the appropriate tax.

In conclusion, Sovereign Gold Bonds present investors with a range of advantages, including fixed interest payments, safety and security, no storage costs, liquidity, exemption from making charges, and access to a loan facility. These features make SGBs a compelling choice for individuals looking to invest in gold with convenience, flexibility, and financial prudence in mind.

Disclaimer: The article is for informational purposes only and not investment advice.