With the 31 July deadline for filing Income Tax Returns (ITR) for Assessment Year (AY) 2026-27 just about 15 days away, taxpayers must act quickly. Those investing in Sovereign Gold Bonds (SGBs) should pay particular attention to the limited time left. They need to ensure that income from these investments is reported accurately and taxes are submitted within the stipulated timelines to remain compliant.
Given that SGBs offer investors tax-efficient returns, the tax treatment of these instruments depends not only on whether the income is interest or capital gains, but also on whether the bonds were redeemed on maturity or sold before maturity.
Note that the changes announced in Budget 2026 will apply only from AY 2027-28. For this particular filing season, taxpayers must follow the existing rules.
How to report Sovereign Gold Bonds income in your ITR
All SGB transactions must be reported under the relevant schedules provided in ITR-2, ITR-3 or ITR-4, as applicable, on a case-by-case basis. The annual 2.5% interest earned on SGBs is fully taxable and must be reported on Schedule OS (Income from Other Sources).
The interest is taxed in accordance with the investor's applicable income tax slab. As government securities are exempted from Tax Deducted at Source (TDS) under Section 193 of the Income Tax Act, no tax is going to be deducted at source on this interest.
Reporting capital gains depends on how the bonds are disposed of. If the original subscriber redeems the bonds with the Reserve Bank of India (RBI) on maturity, the capital gains will remain exempt under the rules applicable for AY 2026-27.
As there are no taxable capital gains, eligible investors can report the exempt amount under the Schedule EI (Exempt Income), wherever applicable.
Budget 2026 changes to take effect next year
One important change in the 2026 budget is the restriction of the capital gains exemption on the redemption of SGBs to ‘original subscribers’ who purchased or invested in the bonds during the RBI's issuance and held them until maturity.
Furthermore, investors who purchased SGBs in the secondary market will no longer qualify for this exemption. Consequently, any gains generated on redemption of such SGBs are going to be taxable and reportable under Schedule CG (Capital gains).
However, these changes will come into effect only from AY 2027-28, when the new Income Tax Act, 2025, comes into full force.
Reporting SGB interest and capital gains under the correct schedules will help ensure accurate tax filing and avoid unnecessary notices and legal complications.
