Sovereign Gold Bond: Govt to issue SGB in 2 series

The Reserve Bank of India and the Indian government have agreed to jointly issue new Sovereign Gold Bonds (SGBs) in installments.

SGB Series 2023-24 details

The subscription period for SGB Series 2023–24 Series III is set for December 18, 2023–December 22, 2023. Consequently, December 28, 2023 is the date of issuance for SGB Series III.

The subscription period for SGB Series 2023–24 Series IV is set for February 12–February 16, 2024. As a result, February 21, 2024 is the date of issuance for SGB Series III.

Sovereign Gold Bond Scheme 2023-24 Series 2

The details of SGB tranche 2023-24 series 2, issued in September 2023, are as follows:

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What is a Sovereign Gold Bond?

The Reserve Bank of India (RBI) issues Sovereign Gold Bonds (SGBs) as government securities on behalf of the Indian government. They are based on the current market price of gold and are distributed in denominations of one gram of gold.

Every year, the RBI issues several tranches of the Sovereign Gold Bond Scheme 2023–24 Series. June 19 was the release date for Series 1, and September 11 was for Series 2. The nominal value is discounted by Rs. 50 per gram to incentivize investment in online transactions.

Keeping SGBs is a practical substitute for real gold. The smallest unit used to express them is one gram, and they are measured in grams. The Indian Bullion and Jewelers Association Limited (IBJA) publishes the average closing price of gold (999 purity) for the three business days prior to the subscription period, which is used to calculate the face value of the bond.

Where can customers buy

Applying for SGB is possible through authorised post offices, stock exchanges like the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), stock holding companies like SHCIL and CCIL, and scheduled commercial banks like HDFC Bank and SBI. It is not possible to purchase them from small finance or local rural banks.

Interest Rate on Sovereign Gold Bonds

SGBs provide investors with the possibility of capital gains in addition to a fixed interest rate of 2.5 percent annually, paid semi-annually.

Maximum Sovereign Gold Bond Subscription Limits

The maximum subscription limit for SGBs varies depending on the type of investor:

• Individuals can invest up to 4 kilograms.
• Hindu Undivided Families (HUFs) can subscribe for 4 kilograms.
• Charitable institutions and trusts can acquire around 20 kilograms of gold per fiscal year.
• In the case of joint investments, the 4-kilogram limit applies only to the first applicant.
• The annual ceiling includes bonds obtained through the initial issuance by the government and those purchased from the secondary market.

SGB Tax treatment

The Income Tax Act of 1961 (43 of 1961) contains provisions that apply to the taxation of interest on SGBs. On an individual’s SGB redemption, there is no capital gains tax. The transfer of the SGB will result in long-term capital gains that qualify for indexation benefits.

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Advantages of Purchasing Sovereign Gold Bonds for Series II Tranche 2023–24

Safety and Security: SGBs offer investors a high level of safety and security because they are issued by the government via the RBI.

Option to Hold Physical Gold: SGBs are a practical option in place of holding physical gold. Without having to deal with the inconvenience of storing and protecting physical gold, investors can participate in the price movements of gold.

Capital Appreciation: SGBs have the same potential for capital growth as actual gold. Investors can profit from price appreciation if the market value of the bonds rises in tandem with the price of gold over time.

Fixed Interest Income: Semi-annual payments at a fixed interest rate of 2.5 percent are made by SGBs. For investors, this interest income provides an extra stream of income.

Tax Benefits: The capital gains from their redemption are tax-free if held until maturity.

No Making Charges or Storage Fees: SGBs don’t require making charges or paying storage fees, in contrast to physical gold. Expenses for charging and safe storage facilities can be avoided by investors.

What Qualifies as an Investment in the SGB Scheme 2023–2024?

• An Indian resident as defined under FEMA 1999
• Individuals, HUFs, trusts, universities and charitable institutions
• Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGB till early redemption/maturity

Options for SGB Payment

The only costs associated with investing in SGBs are cash (up to a maximum of Rs. 20,000/-), demand draft, check, or electronic banking. You will be paid the current market value of gold when the investment matures. Purchasing SGBs does not entail any additional fees, such as GST, unlike buying physical gold.

How Can the SGB Status Be Checked?

The primary issue does not guarantee the allocation of SGBs. The units are distributed through a lottery. On the allotment date, if you purchased the bond, the units will be accessible in your demat account. The investment certificate is available from the issuing bank, SHCIL offices, post offices, designated stock exchanges, or agents if you made your investment offline.

A digital copy of your investment certificate will also be sent to the email address you registered with.

2023–24 Sovereign Gold Bond Taxation

Tax on interest income

The Income Tax Act of 1961’s provisions apply to the taxable interest income from Sovereign Gold Bonds. Your total income is increased by the interest income, and tax is withheld based on the applicable tax slab.

Tax on Capital Gains

Gains resulting from an increase in the value of the underlying asset are referred to as capital gains. For instance, if the price of 10 grams of gold was ₹45,000 when you bought it, and it is currently ₹47,000, your capital gains are ₹47000 – ₹45000 = ₹2000.

There is an exemption from paying Capital Gains Tax in case you redeem the SGB with RBI (on behalf of the government) 

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In case of redemption before maturity

Short-term Capital Gains Tax

Gains on the sale of the bond before the full year following investment will be subject to short-term capital gains (STCG) tax. The income tax slab that applies to you based on your income (including short-term capital gains) will be the same as the STCG that is charged to you.

Long-term Capital Gains Tax

You pay 10% tax without indexation benefits or 20% tax with indexation benefits if you sell the SGB after a year. Index refers to the method used to calculate real capital gains after taking inflation into account when determining the bond’s purchase price.

How to Redeem the Sovereign Gold Bonds after 8 Years of Maturity?

The maturity period of the Sovereign Gold Bonds is eight years. You will receive notification one month prior to the maturity date upon the completion of the eight-year tenure. The remaining sum will be credited to your bank account, which is already listed on the certificate, upon maturity. If you purchased the units in demat form, the units will be automatically debited from your bank account that is linked to your demat, and the amount will be credited to it.

The average price of 999 purity gold over the previous three working days, as published by India Bullion and Jewellers Association Limited (IBJA) prior to the maturity date, will be used to calculate the redemption price in Indian rupees.

Loan Against Bonds 

When taking out loans from banks and non-banking financial firms, Sovereign Gold Bonds may be pledged as security. The SGB loan-to-value ratio is the same as the standard gold loan that the RBI has prescribed. Moreover, banks have the final say on whether to grant loans secured by SGBs. Each bank has a different minimum and maximum loan amount. The pledge of SGBs in Demat or a physical certificate form will be required as security by the lending institution.

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