Gold is one of the favourite asset classes of Indians. Its recent popularity and price spike can be largely credited to inflation. Unlike currencies, which central banks can print endlessly, gold has limited supply. This makes it a valuable asset during inflationary times as its value typically increases alongside the prices of goods and services. Thus, gold investment options, especially Sovereign Gold Bonds (SGBs) are getting more interest from retail investors.

Sovereign Gold Bonds (SGBs) offer a safer alternative to owning physical gold, issued by the Government of India and RBI.

SGBs are quite popular because of not only their price appreciation but also because they offer an annual interest of 2.5%.

But how is this SGB interest paid and taxed?

Let’s find out.

How does Sovereign Gold Bond Taxation work?

Sovereign Gold Bonds (SGBs) subscribers can earn interest at savings bank rate from the date they apply or deposit funds until they receive their bond allocation. This interest is not paid if the application is rejected due to the investor’s fault. 

As of now, the interest on SGBs is set at 2.5% per annum and is paid every six months into the registered savings account. This interest is directly deposited into the bondholder’s bank account by the Reserve Bank of India (RBI). If the bonds are held through depositories, they will arrange for the interest to be credited electronically to the bond holder’s bank account on the due date. 

Also Read: Gold price today jumps to Rs 75,400. Can you sell Sovereign Gold Bonds now?

How is SGB annual interest taxed?

This is where things get interesting.

If you keep Sovereign Gold Bonds (SGBs) for the full eight-year term, you won’t pay any capital gains tax when they mature. So, all the value appreciation that would have happened in your SGB would be tax-free. 

However, if you sell them before maturity, you’ll have to pay capital gains tax on the profit you have made at 20% with indexation benefits.

Now, this isn’t the same for interest earned on Sovereign Gold Bonds.

These bonds earn a fixed interest rate of 2.5% per year, paid every six months. This interest is taxable according to your income tax bracket.

Hence, while you don’t pay any taxes on the capital gains of SGBs if you are holding them till maturity, you have to pay tax as per your slab rates on the interest you get on them every year.

Also Read : Want to Sell Sovereign Gold Bonds to Benefit from Gold Price Surge? Know How it’s Taxed

Conclusion

Sovereign Gold Bonds are one of the most tax-efficient options for investing in gold. Moreover, it provides a good hedge against inflation. Therefore, it is a decent investment choice.

However, its lock-in period and limited liquidity should be considered before investing in these gold bonds.

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Disclaimer: The above content is for informational purposes only. The 1% News recommends consulting a SEBI-registered investment advisor before making any investment decision.