The subscription of the first tranche of Sovereign Gold Bond scheme will close on Friday. Launched in 2015, the Sovereign Gold Bonds are government securities denominated in grams of gold. Introduced in 2015, the gold bond scheme is one of the popular investment options, thanks to additional returns.
The Reserve Bank of India fixed the issue price at ₹4,777 per gram. The interest on the bonds is fixed at 2.50% per annum. The interest will be credited semi-annually to the bank account of the investor and last interest will be paid on maturity along with the principal. The interest is entirely taxable according to the applicable tax bracket. However, there is no Tax Deducted at Source or TDS.
The minimum investment in the gold bonds shall be one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities. In case of joint holding, the limit applies to the first applicant, the central bank clarified.
The tenor of the bond is 8 years. Both interest and redemption proceeds will be credited to the bank account furnished by the customer at the time of buying the bond, the RBI said. The banks allow early encashment or redemption of the bond after fifth year from the date of issue on coupon payment dates.
The returns on such paper gold investment are completely tax free after eight years. Sovereign Gold Bonds have a maturity period of eight years with the option for an early exit after five years. However, in case of pre-mature exit from investments in gold bonds, all returns from such transactions are treated as long term capital gain and taxed at 20% along with applicable surcharge and 4% cess
How to buy Sovereign Gold Bonds
Resident individuals, Hindu Undivided Family (HUF)s, Trusts, Universities and Charitable Institutions are eligible to apply for the subscription of the bonds. Individuals can buy gold bonds from commercial banks, Stock Holding Corporation of India Limited (SHCIL), post offices designated by RBI and recognised stock exchanges, either directly or through agents.
Customer can apply online through the website of the listed scheduled commercial banks. The issue price of the gold bonds will be ₹50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.
There is no Tax Deducted at Source (TDS). Sovereign Gold Bonds have a maturity period of eight years with the option for an early exit after five years. However, in case of pre-mature exit from investments in gold bonds, all returns from such transactions are treated as long term capital gain and taxed at 20% along with applicable surcharge and 4% cess
Should you invest in Sovereign Gold Bonds?
“Experts recommend a minimum allocation of 5%-10% towards gold in the portfolio. People who seek the requisite allocation towards gold can invest in Sovereign Gold Bonds. Investors who can invest in Sovereign Gold Bonds up to maturity may do so for the sovereign guarantee, interest payout, and tax-free gains," said Archit Gupta, founder and chief executive officer of ClearTax.
“Moreover, you don’t incur storage expenses and making and wastage charges as compared to gold jewellery. People who want to buy gold at a future date may invest in SGBs as the bonds are redeemed at a price equivalent to the gold price on the redemption date," Gupta further added.
“An additional benefit of 2.5% over and above the price of the underlying asset, exemption on long term capital gains for individuals, indexation facility on LTCG on the transfer of bonds, availability in format for etc are the charming factors with Sovereign Gold Bonds for a retail investor," Jeevan Kumar, head investment advisor at Geojit financial services said.
“One can invest in gold as a part of his portfolio diversification. The presence of gold will help him to hedge against inflation and a 10 to 15% allocation in the metal would be an ideal proposition. SGB is considered as a simple route to access this allocation," Kumar added.