Sovereign Gold Bonds' Tax Exemption Under Section 80c

A sovereign gold bond or SGB is a popular form of investment where you purchase gold digitally in the form of bonds. The government of India started issuing these gold bonds in 2015 and since then has been providing interest payouts of 2.5 per cent per annum.You can keep SGBs as collateral against loans and there is no need to worry about potential theft or loss as SGBs exist in a digital format.However, you should also know that there is a lock-in period of eight years in SGBs wherein you cannot redeem the bond. Gold prices are always fluctuating and are prone to market volatility. Hence, there is a possibility that you may incur a capital loss if you purchase gold at a higher price than what you receive during redemption.In this blog, you will learn about sovereign gold bonds' tax exemption under section 80C.

• A sovereign gold bond is a popular form of investment where you purchase gold digitally in the form of bonds.
• Sovereign gold bonds' tax exemption under section 80C includes TDS benefits. There are long-term and short-term capital gains exemptions as well.
• You should always weigh all the pros and cons before you decide to invest in sovereign gold bonds.

The primary implications of buying SGBs are the tax benefits that you get. Sovereign gold bonds' tax exemption under section 80C includes the following:

TDS Benefits

When you buy physical gold worth more than ₹1,00,000, TDS (tax deducted at source) is charged at 1 per cent. But when you buy, sell or transfer sovereign gold bonds, you are not charged any TDS.

Long-Term Capital Gains Exemption

Sovereign gold bonds' tax exemption under section 80C comes under the category of capital gains, either short-term or long-term. The SGBs are exempt from long-term capital gains (LTCGs) taxation if held till maturity which is a lock-in period of 8 years.In LTCG, you can transfer or sell the gold bonds after five years of possession where the tax rate applicable will be 20 per cent minus the indexation benefits. If the indexation benefits are not opted for,a tax rate of 10 per cent will be applicable.Indexation is a process that calculates the change in value of your investments by adjusting its purchase price for inflation. This helps you in reducing the tax liability. Also Read: How to Calculate Capital Gains Tax on the Sale of Land

Short-Term Capital Gains Exemption

If you sell or transfer the SGBs before three years, the capital gain on the same will be called STCG (short-term capital gains) , which may or may not be applicable.Essentially, if you sell your bond within three years of purchase and make a profit, then it is taxable at the slab rate of your total taxable income.

Interest Taxation

Under sovereign gold bonds' tax exemption under section 80C, the interest amount you receive on SGBs is considered as income. This makes it subject to taxation as your interest income from an SGB falls under the category of 'Income From Other Sources'.

GST on Brokerage

The GST (goods and service tax) on SGBs applies only to the brokerage charged by a broker. When you invest in SGBs, you have to pay GST at a flat rate of 18 per cent on the brokerage amount.For instance, if your broker charges you ₹100 as brokerage for buying sovereign gold bonds, you will have to pay an additional ₹18 as GST on that brokerage amount.

Investing in sovereign gold bonds or any other financial asset directly impacts your current and future finances. You should always be aware of the risks, taxation and other implications that come into effect while investing and redeeming the investment.Even though sovereign gold bonds' tax exemption under section 80c is subject to change based on the government’s policies, you should still weigh all the pros and cons before you decide to invest in sovereign gold bonds.