Sovereign Gold Bond Explained: How It Works, Interest & Tax Rules

Gold has always held a special place in Indian households — as a store of value, a hedge against uncertainty, and a symbol of financial security. But holding gold physically comes with its own challenges: storage risk, purity concerns, and zero income. To solve this, the Government of India introduced Sovereign Gold Bonds (SGBs) — a way to invest in gold without owning it physically, while also earning interest.

Launched in November 2015, the Sovereign Gold Bond scheme allows investors to gain exposure to gold prices through government-backed bonds, making it one of the most trusted Gold Investment options in India.

Understanding Sovereign Gold Bond (SGB)

A Sovereign Gold Bond is a government security denominated in grams of gold, issued by the Reserve Bank of India (RBI) on behalf of the Government of India. Instead of receiving physical gold, investors receive a certificate of holding or the bond is credited to their Demat account. The value of an SGB is linked to the market price of gold. In addition to price appreciation, investors earn a fixed interest of 2.5% per annum, making SGBs different from physical gold.

What is Sovereign Gold Bond Scheme?

The Sovereign Gold Bond scheme was introduced to reduce the demand for physical gold in India, thereby lowering gold imports and encouraging households to shift towards financial savings. SGBs offer returns linked to gold prices, similar to physical gold, but without storage or purity issues. The bonds are redeemed in cash at maturity, based on the prevailing gold price. Since the bonds are issued by the RBI on behalf of the Government of India, they carry sovereign backing, making them one of the safest gold investment options available.

Latest Status of Sovereign Gold Bond Issues

Sovereign Gold Bonds are issued in tranches (batches released in phases, not all at once), as and when notified by the Reserve Bank of India (RBI). There is no fixed annual schedule for new issuances, and fresh subscriptions depend on government policy and borrowing requirements. At times, fresh SGB tranches may not be open for public subscription. Investors should always check official RBI notifications for updates on new issues.

However, even when no fresh tranche is available, investors can still buy Sovereign Gold Bonds from the secondary market. Existing SGBs are listed and traded on the NSE and BSE and can be purchased through a Demat account at prevailing market prices. Secondary market availability continues until the respective bonds reach maturity.

Sovereign Gold Bond Rate and Features

Sovereign Gold Bonds are denominated in multiples of one gram of gold, with the minimum investment being one gram.

Key features include:

• Interest rate: 2.50% per annum (fixed), payable semi-annually
• Tenure: 8 years
• Premature exit: Allowed after the 5th year on interest payment dates
• Form: Paper certificate or Demat
• Tradability: Listed on NSE and BSE

The interest rate is fixed at the time of issuance and remains unchanged throughout the bond’s tenure. Future tranches may carry different interest rates depending on government policy.

Investment Limits for Sovereign Gold Bonds

The maximum investment limit per financial year (April–March) is:

• Individuals and HUFs: 4 kilograms of gold
• Trusts and similar entities: 20 kilograms of gold

These limits include investments made across all tranches during the financial year.

Key Things to Know About Sovereign Gold Bonds

• Minimum investment is 1 gram of gold
• Available in paper and Demat form
• Tradable on NSE and BSE
• Backed by the Government of India
• Can be used as Collateral for loans
• No storage, theft, or purity risk

Liquidity and Trading of SGBs

Although Sovereign Gold Bonds are tradable on stock exchanges, liquidity in the secondary market may be limited. Bonds may trade at a discount or premium to the prevailing gold price depending on demand, remaining tenure, and market conditions. Investors planning to exit before maturity should consider this factor.

Taxation of Sovereign Gold Bonds

How Sovereign Gold Bonds are taxed depends on two things:

• How you earn from them (interest or price rise)
• How and when you exit (maturity or selling earlier)

Let’s break it down.

Interest Income (No Confusion Here)

Sovereign Gold Bonds pay 2.5% interest every year. This interest is:

• Added to your total income
• Taxed as “income from other sources”
• Charged according to your income tax slab

There is no tax exemption on interest, irrespective of how long you hold the bond.

Capital Gains (This Is Where Rules Changed)

Capital Gains tax depends on how you exit the bond.

1. Redemption at Maturity (Bought Directly from RBI)

If you have bought the SGB during an original RBI issue, and held it till maturity (8 years), then capital gains are completely tax-free for individual investors. This benefit still continues under the latest tax rules.

2. Bought from Stock Exchange & Held Till Maturity (Important Update)

If you have bought the SGB from NSE or BSE (secondary market), and redeem it at maturity then from 1 April 2026 onwards, capital gains will be taxable.

• Earlier, this exemption applied to everyone.
• Now, it applies only to original issue buyers.

3. Selling SGB Before Maturity on Stock Exchange

If you sell your SGB before maturity:

• Short-term gains (held ≤ 12 months) - Taxed as per your income tax slab
• Long-term gains (held > 12 months) - Taxed at 12.5% + surcharge + cess

Earlier, Sovereign Gold Bonds were seen as “fully tax-free gold”. After recent budget changes, how you buy the bond matters as much as why you buy it. If tax-free maturity is your goal, original RBI issues matter more than ever.

Who Should Invest in Sovereign Gold Bonds?

SGBs are suitable for investors who:

• Want long-term exposure to gold
• Prefer safety and sovereign backing
• Do not require frequent liquidity
• Want to avoid physical gold storage
• Are looking to diversify their Portfolio

Who Should Avoid Sovereign Gold Bonds?

SGBs may not be suitable for investors who:

• Need high liquidity
• Prefer short-term trading
• Are uncomfortable with gold price fluctuations

Sovereign Gold Bond vs Physical Gold vs Gold ETF

Eligibility for Sovereign Gold Bond Scheme

Indian residents

• Individuals, HUFs, trusts, universities, and charitable institutions
• Minors (investment through parent or legal guardian)

Non-resident Indians (NRIs) are not eligible to invest in new SGB issuances.

Where Can You Buy Sovereign Gold Bonds?

Sovereign Gold Bonds can be purchased through:

• Scheduled commercial banks
• Designated post offices
• Stock exchanges (NSE and BSE)
• Online banking platforms of authorised banks

Risks of Investing in Sovereign Gold Bonds

• Gold price Volatility
• Limited liquidity in secondary markets
• Opportunity Cost during periods of stagnant gold prices

Despite these risks, Sovereign Gold Bonds remain one of the most efficient and secure ways to invest in gold for long-term investors.

Final Takeaway

Sovereign Gold Bonds offer a safe, transparent, and tax-efficient way to invest in gold without the hassles of physical ownership. For investors with a long-term horizon and moderate liquidity needs, SGBs can play an important role in portfolio diversification.