The Reserve Bank of India (RBI) has launched the fourth series of its Sovereign Gold Bond (SGB) Scheme for the fiscal year 2022-23. The scheme, which aims to offer investors an alternative to buying physical gold, has gained popularity among Indian investors in recent years.
Q What is Sovereign Gold Bond Scheme?
A The Sovereign Gold Bond Scheme is an investment option issued by Reserve Bank on behalf of Government of India. It allows people to invest in gold without physically owning it. Instead, investors can buy bonds issued by the government that are linked to the market price of gold. This means that investors can benefit from the appreciation in gold prices, without the need to physically store or transport the metal. The Bonds are denominated in units of one gram of gold, with investors having the flexibility to invest in multiples of one gram.
Q Who can buy Sovereign Gold Bond Scheme?
A Sovereign Gold Bonds (SGBs) can be bought by Resident Individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions. Non-resident Indians (NRIs) are also eligible to invest in SGBs, subject to the provisions of the Foreign Exchange Management Act (FEMA), 1999.
Minor can also invest in SGB, and the application has to be made by his/her guardian.
Q Why should I buy SGB rather than physical gold? What are the benefits?
A Buying physical gold comes with its own set of challenges, such as storage and security issues, making charges, and purity concerns, which is why Sovereign Gold Bonds (SGBs) are an attractive alternative.
In SGBs the quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption. Investors are also assured of the market value of gold at the time of maturity and periodical interest. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.
Also SGBs are exempt from GST, whereas physical gold purchases are subject to a 3% GST. It should be noted that GST is only applicable on the brokerage charged by your platform, which may or may not be applicable.
Q What is the minimum and maximum limit for investment?
A The Bonds can be purchased in units of one gram of gold or multiples thereof, with a minimum investment of One Gram of Gold.
Maximum limit of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF), and 20 kg for trusts per fiscal year (April – March).
Q What are the details regarding the Issue price, Subscription Term, and Interest Rate offered?
A The Issue price for the bond has been set at Rs 5,611 per gram of gold. Additionally, investors who bid through digital mode or apply online can avail a discount of Rs 50.
The subscription period is from 6-10 March 2023.
The bonds carry an interest rate of 2.50 per cent per annum on the initial investment amount paid by the investors to buy the bond. Interest will be credited semi-annually to the bank account of the investor.
Q What is the Holding Period for SGBs?
A Sovereign Gold Bonds (SGBs) have a Lock-In Period of 8 years, which means that investors are required to hold the bonds for at least 8 years from the date of issuance. However, an Early Redemption Window is available after 5 years, giving investors the option to exit from the investment after completing 5 years from the date of issuance.
Q What are the tax implications for SGBs in terms of interest and capital gains?
A The interest earned on SGBs is taxable according to the investor's applicable slab rates. However, for individuals who hold the bonds till maturity of 8 years, the capital gains tax on redemption is exempted. It's important to note that early redemption, transfer, or selling on an exchange will result in capital gains tax. Additionally, long-term capital gains arising from the transfer of bonds to any person will be eligible for indexation benefits.
Q What are the authorized channels through which one can purchase SGBs?
A SGBs can be purchased through various authorized channels, including the offices or branches of nationalized banks, scheduled private banks, scheduled foreign banks, designated post offices, Stock Holding Corporation of India Ltd. (SHCIL), and authorized stock exchanges.
You can also purchase SGBs from the secondary market through your Demat account as they are often available at a discount compared to their current market price.
Let's also take a look at a comparison table between Sovereign Gold Bonds (SGBs) and Gold ETFs to help you make an informed decision:
| Criteria | Sovereign Gold Bonds (SGBs) | Gold ETFs |
|---|---|---|
| Nature of investment | Bond | Exchange-traded fund |
| Underlying asset | Gold | Gold |
| Returns | Interest income (2.5% p.a.) and capital appreciation | Capital appreciation only |
| Liquidity | Low liquidity | High liquidity, can be traded on the stock exchange |
| Expenses | Minimal, only brokerage fees and demat account charges | Annual expense ratio and brokerage fees |
| Taxation | Interest income is taxable as per the investor's income tax slab. Capital gains tax applies only if sold before maturity. | Short-term capital gains tax if sold before 3 years, long-term capital gains tax if sold after 3 years. |
| Investment amount | Minimum investment of 1 gram, maximum of 4 kg per fiscal year | No minimum investment amount, can buy any amount of units |
| Investment period | 8 years, with an exit option available from the 5th year onwards | No specific investment period, can be held for short or long-term |
| Risk | Low-risk investment due to sovereign guarantee | Market risk and counterparty risk involved |
| Market availability | Limited availability during specific subscription periods | Available for purchase and sale on the stock exchange at any time |
This Article was authored by Tushant a passionate blogger by .
Co-founded Tax Ninja with the aim to serve knowledge digitally.
He's on a valiant quest to share his knowledge of Income Tax and GST.
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