Sovereign gold bond redemption tax rules: Do you need to declare it while filing ITR?

Sovereign gold bonds have been a popular investment option for those seeking exposure to gold without the hassles of storing physical bullion. Issued by the Reserve Bank of India (RBI) on behalf of the Government of India, these gold assets offer investors the dual benefit of potential capital appreciation linked to gold prices and a fixed interest income at 2.5% per annum.

The tax treatment of SGB redemption has undergone some major changes from April 1, 2026, in line with proposals announced in the Union Budget 2026, though it remains favorable for original subscribers.

What are SGBs?

SGBs are government securities denominated in grams of gold and issued as substitutes for holding physical gold. The bonds carry an eight-year tenure with an option of premature redemption after five years. Under RBI rules, premature redemption is permitted after the fifth year from the date of issue, on the date on which interest is payable.

No new sovereign gold bond tranches have been announced for FY 2026–27 and there is no calendar issued as of April 2026. The scheme has been paused in effect amid concerns over high borrowing, as per a Cleartax report.

How are proceeds from sovereign gold bonds redemption taxed?

Under the revised rules announced in Union Budget 2026, the capital gains tax exemption on redemption will only apply to the original subscriber who purchased the SGB from the government and held it until maturity.

Investors who acquired SGBs from the secondary market, through transfers or by any mode other than the original issuance will no longer be eligible for capital gains exemption on redemption.

For them, gains arising on redemption or sale after a holding period of more than 12 months will be taxed as long-term capital gains (LTCG) at 12.5%. Whereas, gains from sovereign gold bonds held up to 12 months will be taxed at the applicable income tax slab rate.

Here's what investors need to know:

• Gains on SGBs held for more than 12 months are taxed as LTCG at 12.5%.
• Gains on SGBs held for up to 12 months are taxed as STCG at applicable slab rates.
• The capital gains exemption on redemption is available only to the original subscriber holding the bond until maturity.
• Secondary-market buyers are not eligible for the redemption-related capital gains exemption.

How is interest income from SGB taxed?

Investing in SGBs not only gives capital appreciation but also an interest of 2.5%. However, this interest will be taxed as income from other sources at applicable slab rates. This continues to be the same as there were no changes in Budget 2026 regarding interest taxation.

Do you need to declare SGB redemption in ITR?

If you are an original subscriber who held sovereign gold bonds until maturity, the redemption amount is not treated as taxable income because redemption by the government is not regarded as a transfer for capital gains purposes under Section 47 (viiic) of the Income Tax Act, 1961.

However, taxpayers who want to remain extra cautious may choose to disclose the redemption proceeds under the Exempt Income (EI) schedule in their ITR form. While this additional disclosure is not strictly necessary, it can be done to maintain transparency and avoid any future queries from the tax department.