The tax treatment of sovereign gold bond redemption has undergone significant changes from April 1, 2026, following proposals announced in Union Budget 2026. According to reports from Mint, the capital gains tax exemption on redemption now applies only to original subscribers who purchased SGBs directly from the government and held them until maturity. Investors who acquired SGBs through secondary market transactions, transfers, or any mode other than original issuance are no longer eligible for this exemption. The latest developments show that even primary issue subscribers must now pay capital gains tax on premature redemption, as reported by Moneycontrol.
For secondary market buyers, gains from redemption or sale after a holding period of more than 12 months will be taxed as long-term capital gains (LTCG) at 12.5%. As reported by Mint, gains from SGBs held for up to 12 months will be taxed at the applicable income tax slab rates. The interest income of 2.5% per annum continues to be taxed as income from other sources at applicable slab rates, with no changes made in Budget 2026 regarding interest taxation. However, the latest premature redemption scenario shows that even primary subscribers face capital gains taxation on early redemption.
Original subscribers who held sovereign gold bonds until maturity receive preferential treatment under the revised tax rules. According to Mint, the redemption amount is not treated as taxable income because redemption by the government is not regarded as a transfer for capital gains purposes under Section 47 (viiic) of the Income Tax Act, 1961. However, taxpayers who want to maintain transparency may choose to disclose redemption proceeds under the Exempt Income (EI) schedule in their ITR form. The latest case study demonstrates this benefit, with original subscribers of SGB 2020-21 Series-III receiving tax-free redemption despite the new rules.
The Reserve Bank of India has announced the premature redemption price for SGB 2020-21 Series-III, with investors having the option to redeem this tranche prematurely from June 16, 2026. The premature redemption price has been fixed at ₹14,774 per unit based on the simple average of the closing prices of gold for the last three business days. The SSGB 2020-21 Series-III was issued at ₹4,627 per gram for online investors while offline investors paid ₹4,677. Based on the premature redemption price, the bond has delivered an absolute gain of ₹10,147 per gram, excluding the semi-annual interest component, representing a 219.30 percent gain from the original investment. This translates to a ₹1 lakh investment becoming approximately ₹3.19 lakh after five years, demonstrating the substantial returns available to original subscribers.
