Sovereign Gold Bonds (SGBs) have always attracted investors looking to participate in gold’s price movement without the challenges of buying and safeguarding physical gold. Backed by the Government of India and issued through the Reserve Bank of India (RBI), these bonds provide exposure to gold while also offering a fixed annual interest payment of 2.5 per cent. However, significant changes to the taxation framework of SGBs have come into effect from April 1, 2026, following announcements made in the Union Budget 2026. While the revised rules continue to offer benefits to certain investors, others may now face a tax liability upon redemption.
Sovereign Gold Bonds are government-backed securities that are linked to the value of gold and are denominated in grams. They serve as an alternative to owning physical gold and come with an eight-year maturity period.
Investors also have the flexibility to redeem these bonds before maturity. According to RBI guidelines, premature redemption is allowed after the completion of five years, provided it is done on an interest payment date.
Notably, no fresh SGB issuances have been announced for FY 2026-27. As of April 2026, there is no issuance calendar in place, and reports suggest the scheme has effectively been put on hold amid concerns over government borrowing costs.
New Tax Rules For SGB Redemption Explained
The biggest change introduced from April 2026 relates to the treatment of capital gains arising from SGB redemption. Under the updated framework, the capital gains tax exemption at maturity is available only to the original subscriber who purchased the bond directly from the government and retained ownership until redemption.
This means investors who bought SGBs through the secondary market, received them via transfer, or acquired them through any route other than the original issuance will not qualify for the exemption.
For such investors, gains earned on redemption or sale after holding the bonds for more than 12 months will be treated as long-term capital gains (LTCG) and taxed at 12.5 per cent. If the holding period is 12 months or less, the gains will be classified as short-term capital gains (STCG) and taxed according to the individual’s applicable income tax slab.
Investors should keep the following provisions in mind under the revised regime:
- Gains on SGBs held for more than 12 months attract LTCG tax at 12.5 per cent.
- Gains on holdings of up to 12 months are taxed as STCG at applicable slab rates.
- Capital gains exemption at redemption is restricted to original subscribers who hold the bonds until maturity.
- Investors purchasing SGBs from the secondary market cannot claim the redemption-related tax exemption.
How Is SGB Interest Income Taxed And Mentioned In ITR?
Apart from potential gains linked to gold prices, SGB holders earn an annual interest of 2.5 per cent. The taxation of this interest component remains unchanged despite the Budget 2026 announcements.
The interest received from Sovereign Gold Bonds continues to be taxable under the head “Income from Other Sources” and is taxed according to the investor’s applicable income tax slab.
For original subscribers who hold their bonds until maturity, the redemption proceeds are generally not treated as taxable income. This is because redemption by the government does not qualify as a transfer for capital gains purposes under Section 47 (viiic) of the Income Tax Act, 1961.
As a result, reporting the redemption amount in the Income Tax Return (ITR) is not mandatory. Nevertheless, some taxpayers may prefer to disclose the amount under the Exempt Income (EI) schedule in their return as an added measure of transparency. While optional, such disclosure may help avoid future questions or clarifications from tax authorities.