Income Tax Rules for Sovereign Gold Bonds: Do You Need to Declare Capital Gains in ITR?

Investing in gold has always been a popular choice in India, and Sovereign Gold Bonds (SGBs) have emerged as one of the most trusted instruments since their launch in 2015. Backed by the Government of India, SGBs not only allow investors to benefit from gold price appreciation but also offer an additional annual interest of 2.5% on the issue price. These bonds have a maturity period of eight years and enjoy specific tax exemptions that make them highly attractive compared to physical gold or gold ETFs.

However, a common question among investors is: Do you need to declare capital gains from SGBs in your Income Tax Return (ITR)?

Case in Point: An Investor’s Query

Aman Sharma, a resident of Chandigarh, invested in Sovereign Gold Bonds during FY 2016–17. His investment matured in 2024–25, and he wanted to know if he must disclose the maturity proceeds as capital gains in his tax filings.

To clarify this, tax experts highlight some important rules around SGBs and taxation.

Maturity Proceeds and Capital Gains Exemption

According to chartered accountant and tax expert Balwant Jain, SGBs are one of the most tax-efficient investment options. At maturity, the redemption amount is exempt from long-term capital gains (LTCG) tax. This benefit is available whether the bonds were subscribed directly during issuance or purchased later in the secondary market.

This exemption is granted under Section 47(VIIIC) of the Income Tax Act, which specifies that redemption of SGBs does not qualify as a “transfer.” Since capital gains taxation applies only when a capital asset is transferred, redemption of these bonds does not attract any tax liability.

As a result, investors like Aman Sharma do not need to report the redemption proceeds as taxable income in their ITR. However, if they wish to be extra cautious, they can voluntarily disclose the amount under the “Exempt Income” (EI) schedule of their tax return.

What Happens in Case of Premature Exit?

While the standard maturity period is eight years, SGB investors are allowed to exit after the fifth year, subject to RBI redemption windows. Such premature redemptions are also exempt from LTCG tax, regardless of whether the bonds were bought directly or through stock exchanges.

However, the rules change if SGBs are sold on stock exchanges or transferred privately. In such cases:

• If sold within one year, the profit is treated as short-term capital gains and taxed as per the individual’s income tax slab.

• If sold after one year, the gains are considered long-term. Earlier, such sales attracted 10% tax without indexation or 20% with indexation if done before July 23, 2024. Post this date, the new rule imposes 12.5% tax without indexation on long-term gains.

Interest Income Still Taxable

It is important to note that while capital gains on redemption are exempt, the 2.5% annual interest earned on SGBs is fully taxable. Investors must include this interest income under the head “Income from Other Sources” while filing their ITR.

Key Takeaways for Investors

No tax on maturity: Redemption of SGBs after eight years is tax-free.

Premature redemption (after five years): Still exempt from capital gains tax.

Sale via stock exchange: Gains taxed as short-term or long-term depending on the holding period.

Annual interest: Taxable and must be reported in ITR.

Optional disclosure: Investors may show redemption proceeds under “Exempt Income” for transparency.

Final Word

Sovereign Gold Bonds continue to be one of the most tax-friendly and secure avenues for gold investment in India. For investors worried about tax compliance, the key is to distinguish between redemption (exempt) and sale on exchanges (taxable). While you don’t need to declare maturity proceeds as taxable income, reporting them under exempt income can add clarity to your ITR.