Sovereign Gold Bond (SGB) Scheme 2020-2021
In India, gold has traditionally been used as an instrument of saving along with its use in jewelry for marriages and festive occasions.
Over the last few decades, gold coins and bricks are being used as a saving medium. In general most of the gold that is imported into the country was rarely put to use regularly.
To take advantage of this habit, the government came out with a novel scheme that would incentivize gold saving as well as prevent the
import of gold.
The government decided to launch a Sovereign Gold Bond scheme where instead of purchasing gold in physical form one can do so in electronic form, just like shares.
Date of Issue
The date of issuances shall be as per the details given in the calendar below:
Sr. No Tranche Date of Subscription Date of Issuance
- 2020-21 Series IX Dec-28-2020 – Jan 01-2021 January 05, 2021
- 2020-21 Series X Jan-11-15-2021 January 19, 2021
- 2020-21 Series XI Feb-01- 05-2021 February 09, 2021
- 2020-21 Series XII Mar-01- 05-2021 March 09, 2021
What is the Gold Bond Scheme?
Sovereign Gold Bonds, hereafter referred to as SGB, are government securities denominated in grams of gold. The Bond is issued by the Reserve Bank of India on behalf of the Government of India.
Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. These bonds act as a proxy for holding physical gold.
Why are SGB called Bonds?
SGB’s are just like any other bonds as the bearer of the
the instrument is entitled to interest payment.
The Bonds bear interest at the rate of 2.50 percent per annum on the amount of initial investment.
This interest will be credited semi-annually to the bank account of the investor and the last final interest will be payable on maturity along with the principal. The tenure of each SGB is for eight years.
At what price is the SGBs sold?
The nominal value of SGB will be fixed based on a simple average of the closing price of gold of 999 purity, published by the India Bullion and Jewelers Association Ltd, for the last 3 business days of the week preceding the subscription period.
The price of gold for the relevant tranche will be published on the RBI website two days before the issue opens.
What are the advantages of SGB over physical gold?
- The risks and costs of storage are eliminated.
- The SGB offers a superior alternative to holding gold in physical form.
- The bonds are held in the books of the RBI or Demat form eliminating the risk of loss of scrip, etc.
- SGB is free from issues like making charges and purity in the case of gold in jewelry form.
- These bonds carry a sovereign guarantee since they are issued by the government.
- The SGB can be used as collateral.
- The buyer gets paid interest on the money invested, which is not possible when holding physical gold.
Who all are eligible to invest in SGB?
A resident Indian as defined under the Foreign Exchange Management Act (FEMA), 1999 is eligible to invest in SGB.
The set of eligible investors include individuals, HUFs, Trusts, Universities, and charitable institutions.
Joint holding and minors are also eligible to invest in SGB. If an individual investor changes his residential status from resident Indian to non-resident he may continue to hold SGB till early redemption/maturity.
What are the tax implications of investing in SGBs on both – interest and capital gains?
Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961.
The capital gains tax arising on redemption of SGB to an individual has been exempted.
The indexation benefits will be provided to long terms capital gains arising to any person on transfer of SGB.
Is there a minimum and maximum limit of investment for SGB?
Yes, the SGB are issued in denominations of one gram of gold and multiples thereof.
The minimum investment in the Bond 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 notified by the government.
Each member of the family can buy 4 kg of SGB in her or her name. In the case of joint holding, the limit applies to the first applicant.
Is premature redemption allowed?
While the tenor of the bond is 8 years, early redemption or encashment is allowed after the fifth year from the date of issue on coupon payment dates.
The proceeds will be credited to the customer’s bank account provided at the time of applying for the SGB. The SGB investor also has the option of selling the bonds prematurely anytime on stock exchanges.
Such sales would attract capital gains tax at the same rate as for physical gold.