In a move that would take away tax benefits for investors buying sovereign gold bonds (SGBs) from the secondary market, the Budget proposed that the capital gains exemption on these bonds will be only be made available to investors in the primary subscription and if held till maturity.
End of Arbitrage
This means all the bonds purchased from the secondary market will not get capital gains tax exemption even if held till maturity. This new clarification will be applicable retrospectively.
The gold bonds scheme notification stated that when bonds are transferred before maturity, the investors will get the
indexation benefits for long-term capital gains. Earlier, tax treatment for bonds purchased from the secondary market and held till maturity was interpreted as tax-exempt.
The Budget has proposed an amendment to section 70 of the Income-tax Act, 2025 to give effect to the new tax treatment of SGBs — capital gains exemption will be available to only original subscribers who hold bonds till maturity. This amendment will take effect from April 1, 2026 and will, accordingly, apply in relation to the tax year 2026-27 onwards.
Liquidity and Market Impact
SGBs were first issued in November 2015 and discontinued in 2024. Eventually, 2.5% interest rates per annum and capital gains tax exemption made it a lucrative investment option. In the nine years, bonds equivalent to 147 tonne gold were issued. The RBI had allowed banks to buyback SGBs after five years of issue with the aim to provide liquidity. The Budget clarified that redemption after five years will not be eligible for tax exemption. Surendra Mehta, national secretary, Indian Bullion and Jewellers Association, said, “The Budget move may moderate premiums quoted on listed bonds and also affect their liquidity.”