Sovereign Gold Bond Tax: Interest, Redemption and Sale

The 2.5% interest on a Sovereign Gold Bond is taxed at your slab rate every year, with no TDS. The gain at maturity is tax-free only if you bought the bond at the original RBI issue and held it for the full eight years. From 1 April 2026, gains from early redemption, exchange sales and bonds bought on the exchange are all taxable as capital gains.

Key facts

This page covers the tax only. For how the scheme works, see our Sovereign Gold Bonds guide.

Tax on the 2.5% annual interest

RBI pays 2.50% a year on the amount you first invested, credited every six months. The rate is fixed, so the payout does not rise with the gold price. RBI’s FAQ says the interest is taxable and that no TDS applies, so the job of paying tax falls on you.

• Show the interest under “Income from other sources” for the year you receive it.
• It is taxed at your slab rate, under the old or new regime, whichever you choose.
• Your bank or depository will not deduct tax, so add it when working out advance tax if your total liability crosses the threshold.

Example: 10 units bought at an issue price of ₹5,000 each cost ₹50,000. Interest is ₹1,250 a year, paid as two credits of ₹625. At a 20% slab, that adds ₹250 a year to your tax before cess.

Redemption at maturity: the exemption and who gets it

SGBs have an eight-year term. The Finance Act, 2026 rewrote Section 70(1)(x) of the Income-tax Act, 2025. The exemption now covers redemption of a Sovereign Gold Bond “if held by an individual from the date of original issue till maturity”.

That gives you two conditions:

1. You subscribed when RBI issued the tranche, through a bank, post office, SHCIL, a broker or RBI Retail Direct.
2. You held the bond without a break until the final redemption date.

If both are met, the full difference between the redemption price and your issue price is exempt. If either fails, the gain is taxable. The change applies from 1 April 2026, which is tax year 2026-27.

The old rule was wider. Section 47(viic) of the Income-tax Act, 1961 treated any redemption of an SGB by an individual as not a transfer. That covered both maturity and early redemption with RBI, however the bond was bought. For redemptions in FY 2025-26 (up to 31 March 2026), the 1961 Act still applies, and you report them in this year’s return for AY 2026-27.

The new wording does not say how heirs or people who received bonds as a gift are treated. If you hold such bonds, get a tax professional’s view before the maturity date.

Early redemption through RBI

RBI allows early redemption after the fifth year, on an interest payment date. Since 1 April 2026 this is taxable even for original subscribers. NISM’s summary of the Budget FAQs says premature redemption does not qualify, “even after completion of the prescribed lock-in period”.

By the time you can redeem early, you have held the bond for more than five years. The gain is therefore always long-term and is taxed at 12.5% under Section 197 of the 2025 Act, with no indexation.

Illustration: RBI fixed the redemption price for 9 September 2026 at ₹15,355 a unit. For 10 units bought at ₹5,000 each, the gain is ₹1,53,550 minus ₹50,000, which is ₹1,03,550. Tax at 12.5% is about ₹12,944 before cess and any surcharge. The same bonds held to maturity by the original buyer would carry no capital gains tax.

Dates, request windows and the price formula are in our SGB premature redemption guide.

Selling on the exchange: holding period and rates

Demat SGBs trade on NSE and BSE. They are securities listed on a recognised stock exchange, so Section 2(101) of the 2025 Act treats them as short-term if held for 12 months or less.

A few points people miss:

• The ₹1.25 lakh exemption under Section 198 applies only to equity shares, equity-oriented fund units and business trust units. SGB gains get no such allowance.
• A resident individual whose other income is below the basic exemption limit can use the unused part against long-term gains, under Section 197(2).
• RBI’s FAQ still mentions indexation for bonds that are transferred. That benefit was withdrawn for transfers from 23 July 2024; the ITR forms now apply 12.5% to such gains.
• A sale on the exchange is never exempt, even if you were the original subscriber.

Bonds bought in the secondary market

If you bought SGBs on the exchange, often at a discount to the gold price, the maturity exemption does not apply to you. Your cost is the price you paid on the exchange, not the issue price.

At maturity, you pay 12.5% on the difference between RBI’s redemption price and your purchase cost, provided you held the bond for more than 12 months. If you bought within the last 12 months before maturity, the gain is short-term and taxed at your slab rate. Interest received while you hold the bond is taxed at slab rates as usual.

The capital gains calculator helps you estimate the tax for each lot.

Reporting SGB income in your return

1. Collect interest credits from your bank statement or depository statement for the year.
2. Pull redemption and sale details from the redemption credit, your broker’s capital gains statement and your purchase records.
3. Use ITR-2, or ITR-3 if you also have business income. ITR-1 allows only Section 112A gains up to ₹1,25,000, which SGB gains are not.
4. Enter interest in the other sources schedule and gains in Schedule CG, lot by lot.
5. Show any exempt maturity gain as exempt income so the credit to your bank account is explained.

This is general information. If you hold several tranches, inherited bonds or bonds bought on the exchange, a chartered accountant can check the treatment for each lot. For wider gold tax rules, see tax on gold in India.

Frequently asked questions

Is SGB interest taxable?

Yes. The 2.50% interest is taxed at your slab rate in the year you receive it. No TDS is deducted, so include it in your return yourself.

Is SGB maturity amount tax-free?

Only for an individual who subscribed at the original issue and held the bond until maturity. Everyone else pays capital gains tax on the gain.

Is premature redemption of SGB taxable?

Yes, from 1 April 2026. The gain is long-term and taxed at 12.5% without indexation, even for original subscribers.

What is the tax on SGBs bought from the stock market?

The maturity exemption does not apply. Gains are taxed at 12.5% if held over 12 months, otherwise at slab rates, using your purchase price as the cost.

Does the ₹1.25 lakh LTCG exemption apply to SGBs?

No. It applies only to listed equity shares, equity-oriented fund units and business trust units.

I redeemed early in FY 2025-26. Is that gain taxable?

A redemption with RBI by an individual up to 31 March 2026 falls under Section 47(viic) of the 1961 Act, which did not treat it as a transfer. Exchange sales in that year were taxable.

Which ITR form do I use for SGB capital gains?

ITR-2, or ITR-3 if you have business or professional income. ITR-1 does not cover these gains.

Sources

• Sovereign Gold Bond FAQs — Reserve Bank of India (checked 16 Sep 2026)
• Finance Act, 2026, Section 43 — Gazette of India (checked 16 Sep 2026)
• Income-tax Act, 2025, Sections 2(101), 197 and 198 — ICAI copy of the Gazette text (checked 16 Sep 2026)
• Section 47(viic), Income-tax Act, 1961 — Indian Kanoon (checked 16 Sep 2026)
• SGB redemption price for 9 September 2026 — Reserve Bank of India (checked 16 Sep 2026)
• Sovereign Gold Bond taxation after Budget 2026 — NISM (checked 16 Sep 2026)
• Who can file ITR-1 — Income Tax Department (checked 16 Sep 2026)
• ITR-2 form, Notification No. 46/2026 — Income Tax Department (checked 16 Sep 2026)