Income tax benefits you get in sovereign gold bonds: 5 things to know2 min read . Updated: 09 Sep 2019, 08:11 AM IST
- The tenor or maturity of sovereign gold bonds is eight years
- Gold bonds can be redeemed before eight years
Sovereign gold bonds are a good option to take exposure to gold as an asset class, say financial planners. After from fetching 2.5% interest, sovereign gold bonds, which are substitutes for investment in physical gold, don't attract capital gains tax if held till maturity. Investors can also exit the bonds before the tenor of eight years. Investors earn returns linked to gold prices. The bonds are denominated in units of one gram of gold or multiples thereof. Minimum investment in these bonds is one gram. As these bonds are issued by the Reserve Bank of India on behalf of the Government of India, they carry sovereign guarantee.
The 2019-20 Series IV of sovereign gold bonds are open set to open for subscription from today and the price has been fixed at ₹3,890 per gram. Further, the government has decided to offer a discount of ₹50 per gram for those investors applying online and making payment for the purchase of the bond through digital mode.
Income tax rules on sovereign gold bonds
1) The interest received on your gold bond holdings is taxable. The interest income is clubbed with your income and taxed according to the applicable tax slab. But it is to be noted that no TDS, or tax deducted on source, is levied on interest income. Currently, sovereign gold bonds pay an interest of 2.5% per annum on the amount of initial investment and interest is credited semi-annually to the bank account of the investor.
2) Sovereign gold bonds have a tenor of eight years. No capital gains tax is applicable if held till maturity. Or in other words, any capital gains arising at the time of redemption is tax-free. This is an exclusive income tax benefit offered on gold bonds to encourage investors to shift to non-physical gold.
3) This exemption from capital gains tax is not available on other instruments like gold ETF and gold mutual funds.
4) If an investor wants to exit gold bonds before eight years, they can do in in two ways: Sell the bonds which are listed on exchanges. An early encashment/redemption of the bond is also allowed after fifth year from the date of issue. In both these cases, capital gains tax is applicable.
5) If the gold bond is sold through exchanges, within three years from the date of purchase then it is considered as short-term. In this case, gains, if any, is added to your gross total income and taxed at the income tax rates applicable to your income slab. Long-terms gains (if gold bonds are held over three years) are taxed 20.8% (including cess) with indexation benefits. Or in other words, the purchase price of gold is adjusted after factoring in inflation.