SGB (Sovereign Gold Bonds)

Sovereign Gold Bonds (SGBs) are government-backed securities denominated in grams of gold, issued by the Reserve Bank of India on behalf of the Government of India. Introduced in 2015 as an alternative to physical gold, SGBs eliminate storage and purity concerns while offering fixed annual interest and favorable tax treatment for long-term holders.

For 2026, SGBs pay 2.5% annual interest (paid semi-annually) on the initial investment amount, regardless of gold price movements. SGBs have an 8-year maturity with an exit option from the 5th year onwards. CRITICAL TAX CHANGE from April 1, 2026: Capital gains tax exemption at maturity now ONLY applies if you purchased SGBs directly from RBI at original issue AND hold until maturity. Secondary market purchases (bought on stock exchanges) lose the tax exemption and will face long-term capital gains tax (12.5% above ₹1.25 Lakh per year under New Regime, or 20% with indexation under Old Regime). Interest earned is taxable as per your income tax slab. SGBs can be traded on stock exchanges, used as collateral for loans, and are dematerialized (no physical certificates).

Real-World Example If Priya bought 10 grams of SGB at ₹5,000/gram (₹50,000 investment) directly from RBI in 2018, she earns ₹1,250 annually as interest (2.5%). By maturity in 2026, if gold is ₹7,000/gram, her redemption value is ₹70,000. The ₹20,000 capital gain is TAX-FREE (original RBI purchase + held to maturity). If she had bought the same bond on the secondary market in 2020, the ₹20,000 gain would be taxable at 12.5% = ₹2,500 tax.