Sovereign Gold Bonds set for redemption on Aug 5 after 8-year term

SGB returns on August 5: Sovereign Gold Bonds (SGBs) issued on August 5, 2016, are set for redemption on August 5, 2024, concluding their eight-year term. 

Initially priced at Rs 3,119 per gram, this tranche is expected to provide substantial returns. Originally, 2.6 tons of gold were issued, with 225.322 kg redeemed after five years, and 2.75 tons remaining for redemption.

In September 2024, an additional 2.39 tons of SGBs from the September 30, 2016, tranche will mature, totaling nearly five tons of bonds set for redemption within two months. This tranche was issued at Rs 3,150 per gram.

Redemption amount calculation

The final redemption amount for the August 5 tranche will be based on the average closing price of gold with 999 purity for the three working days preceding the redemption date, as reported by the India Bullion and Jewellers Association (IBJA). 

Despite a global market correction and a reduction in import duties, which have decreased gold prices from Rs 7,500 to Rs 7,250 per gram, investors in the 2016 SGBs have seen notable returns.

Experts indicated that investors will receive approximately 12 per cent annual returns, net of income tax.

The Sovereign Gold Bond scheme, launched in November 2015, offers a non-physical investment option in gold. These bonds are available in various denominations and are redeemed in cash, eliminating the need for physical gold storage. 

Investors benefit from the market price at redemption and receive annual interest payments. SGBs also avoid issues related to purity and making charges of physical gold.

Tax treatment of SGBs

SGBs held for more than 12 months are classified as long-term capital assets, with any transfers after July 23, 2024, subject to a tax rate of 12.5 per cent under Section 112, without indexation benefits. Bonds held for 12 months or less are treated as short-term capital assets and taxed according to applicable slab rates.

SGBs are considered a secure and tax-efficient investment alternative compared to physical gold, which offers greater liquidity but incurs storage costs. The decision between SGBs and physical gold depends on individual investment preferences, liquidity needs, and tax implications.