Sovereign Gold Bonds Features, Advantages, Income tax and GST
Introduction
SGBs are government securities that are expressed in kilos of gold, allowing individuals to invest in gold without the hassle of storing physical gold. Investors must pay the issue price in cash, and the bonds must be redeemed in cash at maturity. On behalf of the Indian government, the bond is issued by the Reserve Bank of India.
Who is eligible to invest in SGBs?
SGB may be invested in by anyone residing in India as defined by the Foreign Exchange Management Act of 1999. Individuals, HUFs, trusts, universities, and charity activity institutions are all welcome to participate. Individual investors who switch from resident to non-resident status may keep their SGB until they are redeemed or mature.
Interest Rates and Returns on Sovereign Gold Bonds
The current annual interest rate on SGB is 2.50%. It is paid twice a year (semi-annually) for a period of eight years, or until maturity. Interest will be credited to the account you specified when you invested. The current market price of gold is frequently used to calculate returns.
Next Issue and Future Issues of Sovereign Gold Bonds
Sovereign Gold Bond 2023-24:
Subscription Period | Date of Issuance | Investment Limit | Interest | Issue Price Per Gram |
19 June 2023 – 23 June 2023 | 27th June 2023 | 1 gm to 4 kg | 2.5% per annum | Rs.5,926 |
According to the RBI circular, the next forthcoming SGB issue would take place between September 11 and September 15, 2023. The date of issuance is September 20, 2023.
Price History of Sovereign Gold Bonds
SGB’s price history for fiscal year 2022-23 is as follows:
Series | Month | Price per Gram |
Series 1 | June 2022 | Rs. 5,041 |
Series 2 | August 2022 | Rs. 5,091 |
Series 3 | December 2022 | Rs. 5,409 |
Series 4 | March 2023 | Rs. 5,611 |
Sovereign Gold Bond Features
Criteria for Eligibility: SGB can be invested in by any Indian resident, including individuals, trusts, HUFs, charitable institutions, and colleges. You may also make an investment on behalf of a minor.
Documentation for KYC: You must adhere to the same Know-your-customer (KYC) standards as when purchasing real gold. KYC must be completed by supplying copies of identity proof such as a PAN Card as well as address proof such as a passport, driving licence or Voter’s ID card for verification.
Capital Gains: The interest on Sovereign Gold Bonds is taxable under the rules of the Income Tax Act of 1961. Individual capital gains tax is waived in the case of SGB redemption. Long-term capital gains are also supplied indexation benefits to an investor or when transferring the bond from one person to another.
SLR Eligibility: SLR was accounted for when banks purchased bonds after invoking lien, hypothecation, or pledging. The capital that a commercial bank must have in gold, cash, and approved securities before extending credit to customers is known as the Statutory Liquidity Ratio (SLR).
Price of Redemption: The redemption price must be in rupees, based on the previous three working days’ average closing price of gold of 999 purity.
Channel of Sales: As previously indicated, the government sells bonds through banks, the Stock Holding Corporation of India Limited (SHCIL), and some post offices. SGBs are also traded directly or through intermediaries on regulated stock exchanges (National Stock Exchange of India or Bombay Stock Exchange).
Advantages of a Sovereign Gold Bond
- Complete Security: Except for market concerns, Sovereign Gold Bonds carry none of the hazards associated with real gold. There are no expensive design or waste fees here. Furthermore, unlike actual gold, SGBs yield interest.
- Additional Earnings: A guaranteed yearly interest rate of 2.50% (on the issue price) is available; this is the most recent fixed rate.
- Advantage of Indexation: Long-term capital gains occur when investors transfer bonds that qualify for indexation benefits. There is also a governmental guarantee on the principle and interest earned.
- Tradability: Gold sovereign bonds can be traded on stock exchanges during a defined time frame (at the issuer’s option). After five years, you can trade them on the National Stock Exchange, the Bombay Stock Exchange, and other markets.
- Collateral: Some banks accept SGB as collateral/security against Demat-pled loans. As a result, after fixing the loan-to-value (LTV) ratio to the value of gold, they will treat it as a gold loan. India Bullion and Jewellers Association Limited makes the decision in this case.
Tax Exemption for Sovereign Gold Bonds Section 80C
There are no tax benefits for SGB lump sum deposits under Section 80C of the Income Tax Act. The interest paid on SGB deposits is likewise not tax-free. The interest must be disclosed as ‘Income from Other Sources’ on tax forms. The income tax will be levied in accordance with the individual’s tax bracket. TDS is not applicable to SGBs. When held until maturity, they are exempt from capital gains tax.
Form of Issue
Under the GS Act of 2006, gold bonds are issued as Government of India stock. Investors will obtain a Holding Certificate for the bonds, which can be converted into a Demat form.
Conclusion
In conclusion, Sovereign Gold Bonds provide investors with a number of appealing characteristics and benefits. They allow you to invest in gold without the need for physical storage, ensuring convenience and security. These bonds also provide a guaranteed interest rate and the possibility of capital appreciation. The interest generated on Sovereign Gold Bonds is taxable, but it is exempt from capital gains tax upon maturity. Furthermore, Sovereign Gold Bonds are GST-free, making them a tax-efficient investment alternative for people seeking gold exposure.
