ITR Filing: A Guide to Reporting Your Sovereign Gold Bonds (SGBs)
The tax treatment of Sovereign Gold Bonds (SGBs) depends entirely on how you exit your investment. As the ITR filing deadline approaches, here’s what you need to know about declaring SGB redemptions and sales.
If You Redeemed Your SGBs with the RBI
If you redeemed your SGBs at maturity (after 8 years) or through the early redemption window (after 5 years), the proceeds are fully exempt from capital gains tax. This is a major tax benefit of SGBs.
- Do you need to report it? No, you are not required to report these proceeds as income in your ITR. Since the law doesn’t consider this a “transfer” of an asset, there is no taxable gain to declare.
- What if you want to be extra cautious? While optional, you can choose to disclose the redemption amount under the Exempt Income (EI) schedule in your ITR-2 form. This demonstrates to the tax authorities that you received the funds but that they are non-taxable.
If You Sold Your SGBs on a Stock Exchange
If you sold your SGBs on the secondary market before maturity, any profits are treated as taxable capital gains. In this case, you must declare the transaction in your ITR.
- Short-Term Capital Gains (STCG): If you sold the SGBs within one year of purchase, the gains are taxed at your regular income tax slab rate.
- Long-Term Capital Gains (LTCG): If you sold the SGBs after holding them for more than one year, the gains are subject to capital gains tax. As per the latest tax changes, LTCG on SGBs is taxed at a specific rate without indexation.
Don’t Forget the Interest Income!
The 2.5% annual interest you earn on your SGBs is considered “Income from Other Sources” and is fully taxable every year. Even though no TDS (Tax Deducted at Source) is applied to this interest, it is your responsibility to declare it in your ITR and pay the due tax.
Which ITR Form Should You Use?
- If you have sold SGBs on an exchange and have capital gains, you must file ITR-2.
- If you have only redeemed SGBs with the RBI and have no other capital gains to report, you can use the ITR form that is otherwise applicable to you (e.g., ITR-1, ITR-2, etc., depending on your other income sources).
Conclusion: SGBs are a highly tax-efficient way to hold gold. Just remember that the tax exemption on capital gains applies only if you hold the bonds until redemption with the RBI. Any premature sale on the exchange will attract capital gains tax.