One of the biggest attractions of Sovereign Gold Bonds (SGBs) is their tax advantage. Unlike physical gold, where gains are taxed, SGBs enjoy unique exemptions if held till maturity. However, taxation changes based on how you exit — through interest income, redemption, or secondary market transfers.
This article explains all tax rules around SGBs in 2025, helping investors plan better.
Interest Income Taxation
- SGBs pay 2.5% annual interest, credited semi-annually.
- This interest is fully taxable as “Income from Other Sources.”
- It is taxed as per your income slab (5%, 20%, or 30%).
- TDS: Not deducted by RBI/banks. Investors must declare it in ITR.
Example: If you hold ₹5 lakh worth of SGBs, annual interest = ₹12,500. If you are in the 20% tax slab, tax liability = ₹2,500.
Redemption Taxation
At Maturity (8 Years)
- Capital gains = Completely Tax-Exempt.
- You don’t pay any tax on gold price appreciation if you hold till the end of 8 years.
- This makes SGBs superior to gold ETFs/digital gold.
Premature Redemption (After 5 Years)
- Allowed through RBI redemption windows.
- Capital gains tax applies:
- If held >3 years → Long-Term Capital Gains (LTCG) @ 20% with indexation.
- If held <3 years → Short-Term Capital Gains (STCG) taxed as per income slab.
Example: You bought at ₹5,000/gram in 2018, redeemed in 2025 at ₹6,500/gram. Gains = ₹1,500/gram.
- If redeemed at maturity in 2026 → Tax-free.
- If redeemed in 2025 (7th year) → LTCG applies with indexation benefit.
Secondary Market Transfers (NSE/BSE)
- SGBs are tradable like bonds.
- If sold before 3 years → STCG (taxed as per slab).
- If sold after 3 years → LTCG @ 20% with indexation.
- Brokerage + STT may apply depending on platform.
Unlike redemption via RBI, exchange sales never enjoy full tax exemption.
Gifting or Transferring SGBs
- SGBs can be gifted/transferred to another demat holder.
- No tax during transfer itself.
- For the receiver, holding period is counted from the original allotment date (important for LTCG calculation).
Example: If you transfer an SGB bought in 2019 to your child in 2025, and they redeem in 2027, taxation will be based on 2019 as acquisition year, not 2025.
Taxation Rules
| Scenario | Tax Treatment |
|---|---|
| Interest (2.5% p.a.) | Taxable as per income slab (no TDS) |
| Redemption at 8 years | Capital gains fully exempt |
| Premature redemption (after 5 years) | LTCG @ 20% with indexation |
| Sale on exchange before 3 years | STCG taxed as per income slab |
| Sale on exchange after 3 years | LTCG @ 20% with indexation |
| Transfer/Gifting | No tax at transfer; receiver inherits original holding period |
Taxation is where SGBs shine brightest. While interest is taxable, maturity redemption is 100% tax-free, giving investors a massive edge over gold ETFs or digital gold. Understanding premature exit and transfer rules helps you avoid surprises and maximize returns.
Plan Your Gold Investments Smarter
Compare SGBs, ETFs, and Digital Gold using our live tools or dive deeper into the Complete SGB Guide.
