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Tax implications of buying gold bonds and holding until maturity

The RBI issues gold bonds on behalf of the government from time to time. (Photo: iStock)

NEW DELHI: Reserve Bank of India regulations mandate that sovereign gold bonds must be listed on exchanges, hence one can buy and sell gold bonds on exchanges using a demat account.

Capital gains on gold bonds held till maturity are tax free. The gold bonds have a tenure of eight years. In case gold bonds are bought on exchanges and are held till maturity, the gains are tax free even if the holding period is less than eight years.

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“As per the provisions of the Income-tax Act,1961, any transfer of sovereign gold bond (issued by the Reserve Bank of India) by way of redemption on maturity by an individual taxpayer is not regarded as a transfer for capital gains purpose. Thus, there should be no capital gains tax implications in the hands of an individual who buys such sovereign gold bond (SGB) from a secondary market and redeems it on maturity,” said Parizad Sirwalla, partner and head, global mobility services, tax, KPMG India.

“As per section 47, transfer of sovereign gold bond by way of redemption is not treated as transfer for the purpose of computing capital gains. Thus, gains arising on redemption of gold bonds are exempt from tax. The exemption shall be available even if the bonds are obtained from the secondary market,” said Naveen Wadhwa, deputy general manager, Taxmann, a tax research firm.

So, suppose you bought a gold bond in 2019 from the secondary market which is maturing in 2022, the gains from the same will be tax exempt if you hold till maturity.

The RBI issues gold bonds on behalf of the government from time to time.

Many people have invested in sovereign gold bonds in primary issues. As per data from RBI, customers have bought 2.91 crore units of gold bonds in the 11 issues of FY20-21. The reason was the surge in yellow metal prices which delivered a return of close to 25% in 2020.

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