The Sovereign Gold Bond (SGB) scheme, once a flagship for transitioning India from physical to paper gold, is facing intense scrutiny following new taxation scenarios proposed in the Finance Bill. Critics are questioning the government’s consistency after years of promoting the bonds as a tax-efficient investment.
Chartered Accountant Karan Bhal took to social media to express the frustration felt by many in the investor community.
“WOW! The government will deserve its share of your PPF, EPF withdrawals too. It’ll deserve its share of your NPS gains too. And what logic is this? ‘If you are making a killing, why shouldn’t I get something?’ Madam, your government only told us to go ahead and buy SGBs without any taxation concerns. If investors make money, you’ll retrospectively change your policies?” Bhal posted.
The New SGB Tax Framework
According to the Finance Bill, the tax treatment of SGBs now depends on how and when an investor enters and exits. While those who subscribe at launch and hold until the 8-year maturity remain tax-exempt, other scenarios have changed. For instance, capital gains will now be taxable for those who purchase units in the secondary market—even if held to maturity—or for those who buy and sell within the secondary market. Additionally, original subscribers who redeem after five years but before the full eight-year term will also face taxation.
Since its launch in 2015, the SGB program saw 67 tranches and the purchase of 147 tonnes of gold. However, rising gold prices have made it unviable for the government to launch new tranches after 2024, leading to increased activity and attractiveness in the secondary market.
Protecting Retailers or Justifying Hikes?
In addition to the gold bond changes, the government is facing questions over a massive hike in the Securities Transaction Tax (STT). The Finance Minister proposed raising STT on futures by 150 per cent (from 0.02% to 0.05%) and on options by 50 per cent (from 0.1% to 0.15%). Finance Minister Nirmala Sitharaman justified the move as a way to protect small investors from losing money in speculation.
“We are not touching STT in general. We are touching only futures and options. And that is where we are getting continuously, people calling us to say people are losing money. And who are the ones losing money who normally don’t have that kind of a spare cash to speculate? So is the government supposed to sit and watch? We want to do what can help in deterring people from getting there,” she told businessline.
Sitharaman emphasized that the move is not a “sweeping brush across the board” and that market regulators would continue to handle other aspects of oversight. She noted that the government’s intent is to deter people from getting into trades where they lack spare cash to speculate.
Despite these justifications, investors like Bhal remain skeptical of the broader logic. He pointed out that overall portfolio XIRRs are “barely in early double digits despite taking risks,” and argued that SGBs face liquidity issues in the secondary market compared to ETFs. “If investors make money, you’ll retrospectively change your policies?” he asked, highlighting the growing concern over the future of long-term savings.