Amendment in the Budget on taxation of Sovereign Gold Bonds

 

1.  SGB amendment:

Under Clause 35 of the Finance Bill, 2026, the existing provision under Section 70(1)(x) of the Income Tax Act 2025, (which provides a capital gains tax exemption on redemption of Sovereign Gold Bonds) has been substituted with a more specific and restricted phraseology.

2.  Old regime (pre-Budget):

Exemption was available on the capital gain on redemption of Sovereign Gold Bonds in the hands of the holder under Section 70(1)(x).

3.  New regime (Finance Bill, 2026) budget wordings:

(x) by way of redemption, of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015 or any subsequent Sovereign Gold Bond Scheme, if held by an individual from the date of original issue till maturity;”.

4.  This amendment makes it explicit that the exemption is only available when the following conditions are met:

Original subscriber: The bond must have been initially subscribed by the individual at the date of original issue.

Held continuously till maturity: The bond must be held by that individual from the date of original issue right up to maturity.

5.  This tightening may have the following effect:

Price Correction: Previously, SGBs on the exchange often traded at a premium because buyers priced in the tax benefit. Now, secondary buyers will likely demand a discount to offset their future 12.5% tax liability.

The Rise of ETFs: Without tax exemption, secondary market SGBs may lose their edge over Gold ETFs. ETFs offer far superior liquidity without the 8-year lock-in. If a secondary buyer has to pay tax on SGBs anyway, the flexibility of an ETF becomes much more attractive.