Sovereign Gold Bond Tax After Finance Act 2026: Who Is Tax-Free

From tax year 2026-27, the capital gain on redeeming a Sovereign Gold Bond is tax-free only if the bond was held by an individual from the date of original issue until maturity. That condition was added by the Finance Act, 2026. If you bought SGBs on a stock exchange, or you redeem early, the gain is no longer covered by the redemption exemption. It is taxed as a capital gain, at 12.5% if long-term. The 2.5% annual interest remains taxable every year either way.

This change matters most to people who bought SGBs in the secondary market at a discount, expecting a tax-free exit at maturity. For the original subscriber who waits the full term, nothing changes.

What exactly changed

Redemption of an SGB is exempt because section 70(1)(x) of the Income-tax Act, 2025 says it is not a “transfer” for capital gains purposes. The Act as passed in August 2025 read:

“of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, by way of redemption, by an individual”

Section 43 of the Finance Act, 2026 substituted that clause, with effect from 1 April 2026, with:

“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”

Three conditions now have to be met together for the redemption to fall outside capital gains:

1. Redemption by an individual. This was already required.
2. Held from the date of original issue. A bond bought later from another investor fails this test.
3. Held till maturity. Redemption before maturity is not covered by the wording.

The amendment also extends the clause expressly to later SGB schemes, not only the 2015 scheme.

Who is affected

Two situations remain open, and the amendment does not spell them out:

• bonds received by inheritance;
• bonds transferred between family members after original issue.

The words “held by an individual from the date of original issue” are the test. Take professional advice before assuming the exemption in those cases.

How a taxable SGB gain is taxed

Holding period. Under section 2(101) a capital asset is short-term if held for not more than 24 months. For a security listed on a recognised stock exchange in India the period is 12 months. SGB series that trade on the exchanges (RBI notes that only bonds held in demat form can be traded there) fall under that 12-month rule; confirm how your own holding is classified before filing. A bond redeemed at maturity, eight years after issue, has in any case been held for far longer than 24 months by its original subscriber; a later buyer’s holding period starts from the date of purchase.

Rate. Section 197(1) taxes long-term capital gains at 12.5%, without indexation. The indexation alternative in section 197(3) applies only to land or buildings acquired before 23 July 2024. A short-term gain is added to your income and taxed at slab rates.

Other points. Chapter VIII deductions, such as section 123 (earlier 80C), cannot be set against long-term capital gains (section 197(5)). A resident individual whose other income is below the basic exemption limit can use the shortfall against the gain (section 197(2)). Cess at 4% applies, and surcharge applies at high incomes, capped at 15% on the capital-gains portion.

Worked example: a secondary-market buyer

Rohan bought 20 grams of an SGB tranche on the stock exchange at ₹5,800 per gram, more than 24 months before it matures. He holds it until the bond matures in tax year 2027-28, when the redemption price is ₹10,500 per gram. The prices are illustrative, not actual RBI redemption prices.

Suppose Rohan had instead subscribed to the same tranche when RBI issued it and held it to maturity. The redemption gain would not be a transfer, and the ₹12,220 would not arise. This assumes Rohan’s other income already uses his basic exemption limit.

The interest is taxable in every case

SGBs pay interest at 2.50% a year on the amount of initial investment, according to RBI’s SGB FAQs. The redemption exemption covers only the capital gain on redemption. We found no exemption for SGB interest in Schedule III of the 2025 Act, so the interest is taxable at your slab rate in the year it is received. An original subscriber who holds to maturity still pays tax on the interest.

Does this change which gold route is better?

For a new investor the comparison now depends on how the gold is acquired:

• SGB bought at issue and held to maturity: tax-free redemption gain, taxable interest.
• SGB bought on the exchange: taxable gain on redemption or sale (12.5% if long-term), taxable interest. A secondary-market discount no longer comes with a tax-free exit.
• Gold ETF: no interest; gain on sale taxed at 12.5% if units are held more than 12 months, since ETF units are listed securities.
• Physical gold: no interest; long-term only after 24 months, then 12.5%, plus making charges and purity risk.

Timeline

• Redemptions on or after 1 April 2026 (tax year 2026-27 onwards): the amended section 70(1)(x) applies.
• Redemptions up to 31 March 2026 were governed by the Income-tax Act, 1961 as it then stood.

Where this fits

• Compute a taxable gain: capital gains calculator
• The three gold routes compared: SGB, gold ETF or physical gold
• After charges and tax: gold or mutual funds, after charges and tax
• If a sale produces a loss: capital loss set-off and carry forward

Sources. Income-tax Act, 2025, sections 2(101), 70(1)(x) and 197 and Schedule III, Gazette of India, 21 August 2025. Finance Act, 2026, section 43 and section 1(2)(a) (commencement 1 April 2026), Gazette of India, 30 March 2026. Reserve Bank of India, Sovereign Gold Bond FAQs (interest, tradability).