How are sovereign gold bonds taxed?

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The twelfth issue of sovereign gold bonds priced at 4,662 per gram is open for subscription. Gold bonds are issued by the RBI on behalf of the government. These bonds are considered one of the best ways of investing in gold in digital form.

Apart from the benefit of potential appreciation in gold prices, these bonds offer a fixed interest of 2.5% on the invested amount to investors. The interest is paid semi-annually. So, if you are planning to invest in gold bonds, it is important that you understand how your gains and interest income from gold bonds will be taxed.

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Taxation of capital gains

Gold bonds have a maturity period of eight years. So, in case you buy gold bonds and hold them till maturity, the capital gains will be tax-free.

Investors can redeem the gold bonds at a price based on the simple average closing price of gold of 999 purity of the previous three business days from the date of repayment, published by the India Bullion and Jewellers Association Ltd.

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Premature withdrawal is also possible from the fifth year onwards. The person going for premature withdrawal can approach the concerned bank or stock-holding corporation, post office or agent 30 days before the coupon payment date.

Requests for premature redemption can only be entertained if the investor approaches the concerned bank or post office at least one day before the coupon payment date. The proceeds will be credited to the customer’s bank account provided at the time of applying for the bond.

In case of premature redemption after the fifth year, the gains will be taxed at 20% post indexation.

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Gold bonds are also listed on stock exchanges. So, you can also buy and sell them through the stock exchanges.

In case the gold bonds are sold before one year, the gains, if any, will be added to the income of the investor and will be taxed as per the slab rate. After one year, the gains will be considered long-term and will be taxed at the rate of 10%.

Taxation of interest income

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The interest will be directly paid to the investor in the bank account. It is fully taxable. The interest income will be added to the income of the investor and will be taxed as per the marginal slab rate.

However, no tax deducted at source (TDS) will be applicable on the interest paid.

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