SOVEREIGN GOLD BONDS (SGB) SCHEME (Syllabus: GS Paper 3 – Economy)

Context: Following the Budget announcement to cut the import duty on gold, the government plans to make a final decision regarding the future of the Sovereign Gold Bonds (SGB) scheme in September.

Sovereign Gold Bonds (SGB) Scheme

• Introduced: In November 2015
• Issued by: Reserve Bank of India on behalf of the Government of India.
• Aim: To reduce the demand for physical gold and shift a part of the gold imported every year for investment purposes, into financial savings through Gold Bonds.
• Eligibility: SGBs will be restricted for sale to resident individuals, HUFs (Hindu Undivided Family), Trusts, Universities and Charitable Institutions.
• Tenor: The tenor of the SGB will be for a period of eight years with an option of premature redemption after 5th year.
• Minimum size: The minimum permissible investment will be One gram of gold.
• Maximum limit: The maximum limit of subscription shall be 4 Kg for individuals, 4 Kg for HUF, and 20 Kg for trusts and similar entities per fiscal year (April-March) notified by the Government from time to time.
• Joint holder: In case of joint holding, the investment limit of 4 Kg will be applied to the first applicant only.

Benefits

• Tax Benefits: SGBs provide tax efficiency with interest income deductible under Section 80C of the Income Tax Act.
• Capital Gains Tax: No capital gains tax is levied if bonds are held until maturity.
• Indexation Advantage: Reduces tax on long-term capital gains for units sold before maturity, but after 3 years.
• Investment Appeal: These features make SGBs an attractive option for investors seeking tax benefits.