In the Union Budget 2026, the government has revised the taxation of Sovereign gold Bonds (SGBs) starting April 1, 2026 (FY 2026‑27) — specifically focusing on capital gains tax on redemption. This change affects how much tax investors will pay when they sell or hold SGBs until maturity.

🪙 What Used to Happen

Until Budget 2026, the capital gains from SGBs redeemed at maturity were completely tax‑free, no matter whether you bought them from:

✔️ Original issue (primary subscription), or
✔️ Secondary market (stock exchanges like BSE/NSE).

This tax benefit made SGBs especially attractive for gold investors and traders seeking a tax‑efficient gold investment.

📌 What’s Changed After Budget 2026

🟡 Tax‑Free capital Gains Only for Original Subscribers

Now, the capital gains tax exemption at redemption will be available only if:

You subscribed to the SGB during its original issuance (when the reserve bank of india opened the booking), and

You hold that bond continuously until maturity (usually 8 years).

If both conditions are met, you still pay no capital gains tax on redemption.

🔴 Tax Applies If You Don’t Meet These Conditions

If any of the following is true ➡️ you will have to pay capital gains tax when the SGB matures or when you sell:

• Purchased SGB on the secondary market (via stock exchange), even if you hold until maturity.
• Bought directly at original issue but redeemed before maturity.
• Neither bought at issue nor held to maturity.

In all these cases, gains will be treated as capital gains and taxed accordingly:

• If held more than 12 months: subject to Long‑Term capital Gains tax (typically 12.5% plus surcharge and cess).
• If sold before 12 months: taxed at your regular income tax slab rate as Short‑Term capital Gains.

📅 Effective Date

This change applies from 1 April 2026 — i.e., for the financial year 2026‑27 and onwards.

🧠 Who Will Benefit

✔️ Original subscribers who bought SGBs directly from the RBI or designated issuing channels at the time of the issue and hold them until maturity — they can continue to enjoy tax‑free capital gains on redemption.

📉 Who Will Pay Tax

❌ Secondary market buyers: Investors who purchase SGBs from the stock exchange or other holders will no longer get the tax‑free redemption benefit, and gains will be taxable when redeemed or sold.
❌ Early exit investors: Even original issue subscribers who redeem before maturity will lose the tax exemption.

This is a major shift from the earlier interpretation where secondary market gains were often treated as tax‑free on maturity, leading to confusion and aggressive investment behavior in SGB secondary trading.

🪙 Interest on SGBs Still Taxable

Note that the annual 2.5% interest paid on SGBs continues to be fully taxable as income under your normal tax slab, even for original issue holders.

📊 Why This Change Matters

🪙 Impact on Secondary Market Demand

Since the tax benefit is no longer automatic for secondary market buyers, demand for SGBs in exchanges may decline sharply, and prices/premiums could fall as a result.

📈 Encourages Long‑Term Holding

The government aims to reward long‑term investors who use SGBs as savings instruments, rather than treat them as short‑term trading vehicles.

💰 Higher Taxes for Some Investors

Investors buying in the secondary market and selling or holding to maturity now data-face capital gains tax, which can significantly reduce their overall returns compared to the earlier tax‑free treatment.

🧠 Summary: New SGB Tax Rules at a Glance

Situation

Capital Gains Tax at Redemption

Bought at original issue and held to maturity

❌ No tax (exempt)

Bought on secondary market and held to maturity

✔️ Taxable

Bought at original issue but redeemed early

✔️ Taxable

Bought on secondary market and sold early

✔️ Taxable

(Tax on interest still applies in all cases.)

📌 Bottom Line

The Budget 2026 tax rule change for SGBs narrows the tax‑free benefit that was once broadly available.

• Good news: If you subscribed when bonds were originally issued and held them till maturity, you keep your tax‑free gains.
• Not so good: If you buy in the secondary market or exit early, your gains will now be taxed — lowering your net returns.

This change forces investors to reconsider how they approach SGB investments and whether holding till maturity still makes sense tax‑wise.

 

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