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SOVEREIGN GOLD BONDS

India has long been a nation where people have been attracted to gold as an asset class. Indian households are estimated to be holding nearly $1 trillion worth of gold in the form of bars and jewelry. India is the largest importer of gold, which mainly caters to the demand of the jewelry industry and investors. In volume terms, the country imports 800-900 tonnes of gold annually. To reduce the import of gold, Sovereign Gold Bond Scheme (SGB) was launched by Govt in November 2015, under Gold Monetisation Scheme. Under the scheme, the issues are made open for subscription in tranches by RBI in consultation with GOI. RBI Notifies the terms and conditions for the scheme from time to time. RBI declares the rate of SGB before every new tranche by issuing a Press Release. As per RBI instructions, “Every application must be accompanied by the ‘PAN Number’ issued by the Income Tax Department to the investor(s)’’ as the PAN number of the first/ sole applicant is mandatory.

BENEFITS

  • Hassle-free: Ownership of gold without any physical possession (No risks and no cost of storage)

  • Tax treatment: The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long-term capital gains arising to any person on transfer of bond.

  • Tradability: Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.

  • Transferability: Bonds shall be transferable by execution of an Instrument of transfer under the provisions of the Government Securities Act.

FEATURES

  • Eligibility: The bonds will be restricted for sale to resident Indian entities, including individuals, HUFs, Trusts, Universities and Charitable institutions. There are two options for applying in the scheme- offline and online. In the online option, a discount is being extended to the subscriber at the investment time. Denomination: The bonds will be denominated in units of one gram of gold and multiples thereof.

  • Minimum Size: Minimum permissible investment will be 1 gram of gold.

  • Maximum limit: Maximum limit of subscription shall be 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time.

  • Interest Rate: The investors will be paid Interest on the amount of initial investment at the rate notified by RBI for a particular tranche at the time of its launch and is payable semi-annually.

  • Tenor: The tenor of the bond will be for 8 years with an exit option from the 5th year onwards to be exercised on the interest payment dates.

  • Redemption: The redemption price shall be fixed in Indian Rupees. The redemption price shall be based on a simple average of the closing price of gold of 999 purity of the previous 3 business days from the repayment date, published by the India Bullion and Jewelers Association Limited.

TAXABILITY

  • Taxability redeemed Before Maturity: If sovereign gold bond matures before 8 year period, capital gains are taxed at 20% with indexation benefit. TDS is not applicable on the bond. It is the responsibility of the bondholder to comply with tax laws.

  • Taxability redeemed on Maturity: Sovereign gold bonds are held till maturity up to 8 years, then capital gains are completely exempted from income tax. TDS does not apply to the bond.

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