Know The Sovereign Gold Bond Tax Benefits

For many Indians, gold is one of the first things that comes to mind when considering investing. Whether as jewellery that doubles as cultural tokens or artefacts and bars for financial security, gold has always been a popular investment choice in India. Keeping this in mind, the Government of India has introduced Gold Bonds that allow investors to invest in dematerialised gold. In addition, investing in Gold Bonds also enables you to enjoy tax benefits to save money. Continue reading to learn more about Sovereign Gold Bonds and the associated tax-related perks.

As mentioned above, Sovereign Gold Bonds are issued by the Government of India; hence, the name. They are issued periodically by the Reserve Bank of India and are offered to investors via banks, financial institutions, post offices, and other channels. The Gold Bonds allow you to invest in the metal in a dematerialised form without dealing with the hassle of owning physical gold.

The Gold Bonds are denominated in grams of gold. The price is determined at the time of each tranche as per the average price. Usually, the RBI sets the price at a rate slightly lower than prevailing in the market. The value of the Gold Bond fluctuates according to the market price of gold. Thus, Gold Bonds enable investors to participate in gold price movement without owning physical gold.

Sovereign Gold Bond tax benefits occur at three levels.

Interest Income

Firstly, you receive interest at a 2.5% rate on your Gold Bond holdings. This interest is entirely taxable, that too, at the peak rate of tax. Thus, if you are in the 30% tax bracket, pay tax on whatever interest you earn via Gold Bonds. Since tax Deducted at Source (TDS) is not applicable on Gold Bonds, show this income when you file your returns and pay advance tax accordingly.

Capital Gains

Sovereign Gold Bonds are redeemed at the end of 8 years. Any capital gains you earn at the end of 8 years will be considered entirely tax-free. The government extends this tax benefit to encourage investors to invest in Gold Bonds instead of physical gold.

Other Condition

However, the tax treatment differs if you exit your Gold Bond investment earlier. There are two popular ways to exit a Gold Bond investment; the first is via the early redemption window at the end of 5 years, and the second is to sell your bonds in the secondary market. In both cases, capital gains will be taxable according to the usual definition of short-term and long-term capital gains. If it is the former, the rate applicable will be at its peak. If it is the latter, the investor can choose between a flat tax rate of 10% or 20% after considering indexation.

Thus, investing in Sovereign Gold Bonds and holding on till the redemption period is over could result in tax benefits that help you save a considerable sum while filing taxes. Plus, you can easily store your Gold Bonds without having to deal with the worry of storing physical gold.

If you want to easily store Gold Bonds, you can always rely on the Demat Accounts offered at HDFC Bank. At HDFC Bank, you can open a Demat Account in less than 10 minutes. Plus, your demat AMC is free for the first year.

There are many advantages of holding your Gold Bonds in a demat account.

• You can get a single view of your investments, be it bonds, shares, mutual funds or insurance policies
• Transactions are hassle-free if you have your bonds in demat form
• Your bonds are safe, with no risk of theft or damage.

If you wish to convert your physical Sovereign Gold Bonds into demat, you can submit a dematerialisation request to the bank with the physical copies of the bonds. The bank will upload the demat request on the RBI’s e-Kuber portal to initiate dematerialisation. Once the process is complete, the SGBs will be reflected in your demat account.

Click here to open a Demat Account at HDFC Bank today!

To know more about How to invest in Gold in 3 different ways? Visit here