Sovereign Gold Bond Tax Rule Change in Budget 2026: Capital Gains Exemption Restricted
The Union Budget 2026 has proposed a significant change in the taxation framework for Sovereign Gold Bonds (SGBs). Under the new proposal, the long-standing capital gains tax exemption on SGBs will now be available only to a limited category of investors.
According to the Budget announcement, the exemption will apply only if the bonds are subscribed at the time of the original issue and held continuously until maturity. This marks a departure from the earlier understanding, where investors enjoyed capital gains tax exemption on redemption regardless of how the bond was acquired.
What Has Changed in the SGB Taxation Rule?
The revised proposal aims to clarify and standardise the tax treatment of Sovereign Gold Bonds across all issuances. As per the Budget 2026 documentation, capital gains exemption will be granted only when:
- The investor subscribes to the SGB during the original issuance by the Reserve Bank of India.
- The bond is held without interruption until redemption at maturity.
This clarification has been incorporated through a proposed amendment to the Income-tax Act, 2025. The objective is to remove ambiguity surrounding tax benefits for bonds purchased via transfers or the secondary market.
Impact on Secondary Market Investors
The proposal is expected to directly impact investors who bought Sovereign Gold Bonds from the secondary market. Earlier, many investors assumed that holding SGBs till maturity would automatically make the capital gains tax-free.
Under the new rule, this benefit will no longer apply to bonds acquired through purchase or transfer after the original issuance. In addition, premature redemption will also disqualify the investor from claiming the exemption.
Interest Income Remains Taxable
It is important to note that the 2.5% annual interest offered on Sovereign Gold Bonds continues to remain taxable as per the investor’s applicable income tax slab. This aspect of SGB taxation remains unchanged.
Revised Tax Treatment Explained
The taxability of capital gains on Sovereign Gold Bonds under the proposed framework can be summarised as follows:
- Purchased at original issue and held till maturity: Capital gains exempt
- Not purchased at original issue but held till maturity: Capital gains taxable
- Purchased at original issue but redeemed before maturity: Capital gains taxable
- Purchased from secondary market and not held till maturity: Capital gains taxable
Uniform Application Across All SGB Issuances
The Budget 2026 proposal also states that this exemption rule will apply uniformly to all Sovereign Gold Bond issuances by the Reserve Bank of India. This ensures a consistent tax framework and eliminates differing interpretations for different bond series.
What Investors Should Keep in Mind
For long-term investors considering SGBs primarily for tax efficiency, subscribing during the original issue and holding till maturity is now crucial. Secondary market purchases may still offer price opportunities, but they will not provide the same tax advantage on capital appreciation.
Investors should carefully reassess their gold investment strategy in light of these changes and factor in the potential tax outgo before making decisions.
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