TL;DR — the three SGB scenarios and their tax treatment
Scenario 1: Hold to maturity (8 years), redeem to RBI. Capital gain on redemption = sale proceeds (gold price at maturity) MINUS cost of acquisition (issue price you paid). This capital gain is EXEMPT under Section 47(viic) of the Income-tax Act for any individual holder at the redemption event. The 2.5% p.a. fixed interest paid semi-annually during the 8-year holding period is fully taxable as Income from Other Sources (IOS) — no Section 10 exemption on the interest.
Scenario 2: Premature redemption to RBI (from year 5, on coupon dates). Same Section 47(viic) exemption applies — premature redemption via RBI is treated as redemption, not transfer. Capital gain exempt for any individual holder. Pro-rata interest taxable.
Scenario 3: Sell on secondary market (NSE / BSE — SGBs are listed). This is a TRANSFER, not a redemption. Section 47(viic) does NOT apply to the seller's exit. Capital gain is taxable: STCG (≤12 months) at slab rate, LTCG (>12 months) at 12.5% per Section 112 (post-Finance (No 2) Act 2024 — indexation removed). The BUYER, if also an individual who later holds to RBI redemption, can claim Section 47(viic) on their own redemption per the statute's plain text and prevailing practitioner consensus.
Statutory note: Section 47(viic) text refers to “any transfer by way of redemption of Sovereign Gold Bond ... by an assessee being an individual” — without explicitly restricting to the original subscriber. Practitioner consensus extends the exemption to any individual holder at the RBI redemption event (including secondary-market buyers who hold to maturity and legal heirs). CBDT has not issued a formal clarification; for large redemptions on secondary-market-acquired SGBs, get a CA opinion.
NRI specific: NRIs cannot subscribe to new SGB tranches per RBI's operational restriction. But if you bought SGBs as a Resident before becoming NRI, you can continue to hold and redeem at maturity — the Section 47(viic) exemption still applies. The exemption attaches to your individual-holder status at the RBI redemption event, not to residency.
Interest taxation specifics: 2.5% p.a. fixed on the face (issue) value, paid semi-annually directly to your linked bank account. RBI does not deduct TDS on SGB interest (per RBI's SGB FAQ Item 19). Recipient declares full interest in ITR under IOS. For NRIs holding pre-NRI-status SGBs, the interest is part of your Indian income — Section 195 technically applies but RBI's operational position is to pay gross. Report in ITR and pay tax in self-assessment if required.
Why Section 47(viic) was introduced and what it covers
Section 47(viic) was inserted into the Income-tax Act by the Finance Act 2016 (effective from 1 April 2017, applicable to AY 2017-18 onwards) specifically to make SGBs more attractive to retail investors versus physical gold.
The core principle: redemption (i.e., bond maturity, where RBI redeems the bond at the prevailing gold price and pays the holder) is NOT treated as a 'transfer' for capital-gains purposes when it's to the ORIGINAL subscriber. Because it's not a transfer, no capital gain arises.
Text effect of Section 47(viic): "Nothing contained in section 45 [the charging section for capital gains] shall apply to any transfer of capital assets, being any of the following, namely... (viic) any transfer by way of redemption of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, by an assessee being an individual."
Three operative restrictions:
1. "Individual" only. The exemption applies to natural-person individuals. HUFs, trusts, AOPs, companies, firms — not covered. If you held SGB through your HUF, the redemption is a transfer for HUF, taxable.
2. "Redemption" only. Sale on secondary market is NOT redemption — it's transfer. Section 47(viic) doesn't cover that. The bond continues to exist; the buyer becomes the new holder; the seller's exit is a capital-gain event.
3. "Original subscriber" implied through redemption mechanism. RBI's SGB scheme redeems only to the holder of record at maturity. If you transferred the SGB on secondary market and you're no longer the holder of record at maturity, you can't claim Section 47(viic) — you've already had your gain on the transfer.
Cost-basis tracking for transferees: A secondary-market buyer's cost basis is what they actually paid (the purchase price on NSE/BSE). The holding period restarts from the date of acquisition. For SGBs received as a gift that's taxable under Section 56(2)(x), Section 49(4) sets the recipient's cost basis at the value taken into account under Section 56(2)(x).
NRI specific — can you buy, hold, and redeem SGBs?
Subscribing to new tranches: NO. Per RBI's Sovereign Gold Bond Scheme Operational Guidelines (Notification F. No. 4(2)-(W&M)/2015 dated 30 October 2015 and subsequent tranche notifications), SGB subscription is restricted to: • Resident individuals (per FEMA) • HUFs (Resident) • Trusts • Universities • Charitable institutions
NRIs, PIOs, OCIs, and foreign nationals cannot subscribe to new SGB tranches. The RBI's subscription portal blocks non-resident applications.
Continuing to hold pre-existing SGBs as NRI: YES. If you were a Resident when you subscribed to the SGB and later became NRI, you can continue to hold the bond. There is no provision requiring redemption on status change. The SGBs continue to: • Earn 2.5% p.a. semi-annual interest (paid to your linked bank account) • Track the gold price (face value follows the prevailing gold price) • Be redeemable at maturity per the original tranche schedule
Redeeming pre-existing SGBs as NRI: YES, with Section 47(viic) exemption intact. Your status as 'original subscriber' is what activates the exemption; current residency is not the test. At maturity, RBI redeems the bond at the prevailing gold price; the capital gain (gold price at maturity minus your issue price) is exempt under Section 47(viic).
Selling on secondary market as NRI: Per FEMA Notification 20(R), NRIs can sell Indian listed securities through their PIS account. SGBs being listed on NSE/BSE are SOLD through PIS. The capital gain on sale is taxable (Section 47(viic) doesn't apply to transfers). LTCG (>12 months) at 12.5% per Section 112 post-FA 2024. STCG at slab rate.
Receiving SGBs by gift or inheritance: If a Resident gifts you SGBs after you become NRI, you become the new holder of record. You don't qualify as 'original subscriber' for those bonds — Section 47(viic) doesn't apply to your subsequent redemption. Where the gift is taxable in the recipient's hands under Section 56(2)(x), Section 49(4) sets the recipient's cost basis at the value taken into account under Section 56(2)(x) (for listed securities, FMV on the date of receipt determined under Rule 11U).
Inheritance: A legal heir who inherits SGBs from a deceased Resident original-subscriber is generally treated as stepping into the original subscriber's shoes for Section 47(viic) purposes — the exemption survives transmission. The CBDT has not issued a formal clarification but this is the established practitioner position. Confirm with your CA before relying on it for a large redemption.
Worked example — Mumbai-Bengaluru resident who became Dubai NRI
Concrete numbers. Consider Priya, who bought SGBs as a Bengaluru-based resident in 2018 and later moved to Dubai (became NRI) in 2022. At redemption in 2026:
Subscription (2018 — as Resident): • SGB Tranche 5 of 2018-19, subscribed via Zerodha on her resident demat account • Quantity: 100 grams (100 units, each gram-denominated) • Issue price (2018): ₹3,180 per gram • Total cost: ₹3,18,000
Held period (2018-2026): • Interest received: 2.5% p.a. × ₹3,18,000 = ₹7,950 per year × 8 years = ₹63,600 total • Interest paid semi-annually to her HDFC NRO account post-2022 • Interest is taxable IOS — Priya declares in each year's ITR-2 (₹7,950 per year × 4 years post-NRI status = ₹31,800) • RBI did NOT deduct TDS on interest (per RBI position on SGB interest) • Priya pays Indian tax on the interest at her slab rate (assuming no other significant Indian income — slab rate basic exemption ₹2.5L covers it; net Indian tax ~zero)
Redemption (2026 — as NRI): • Maturity: 8 years from issue (2018 → 2026). RBI redeems at the prevailing gold price. • Assume gold price at maturity: ₹7,500 per gram • Redemption value: 100 × ₹7,500 = ₹7,50,000 • Capital gain: ₹7,50,000 − ₹3,18,000 = ₹4,32,000 • Section 47(viic) exempts the capital gain entirely. Priya pays ZERO Indian capital gains tax on this redemption. • Total Indian tax bite on the entire SGB lifecycle: ~zero (interest covered by basic exemption + capital gain exempt under 47(viic)) • Net repatriable amount: ₹7,50,000 + ₹63,600 interest = ₹8,13,600 (post-tax, freely available)
Repatriation: • Funds in NRO account (interest + redemption proceeds went to her HDFC NRO account) • Subject to NRO USD 1M/FY repatriation cap (₹8.13L well within limit) • Form 15CA + 15CB for the outbound transfer
Dubai (UAE) tax position: • UAE has zero personal income tax. The Indian post-tax amount is the final net. • If Priya had been US-based: US 1040 reports the redemption gain (potentially US capital gains tax 0%/15%/20%) and the interest (US ordinary income), with FTC for the Indian tax paid (~zero). Schedule FA on Indian ITR (RNOR/ROR years) reports the bond holding.
The SGB profile — Section 47(viic) exemption on redemption + modest taxable interest — makes it one of the most tax-efficient long-term Indian investments for NRIs who happened to hold them pre-status-change.
Secondary-market sale — when the exemption doesn't apply
If you exit before maturity by selling on NSE/BSE (where SGBs are listed and have some secondary-market liquidity), Section 47(viic) does NOT apply.
Why: The exemption is for 'redemption' (returning the bond to RBI for the gold-price equivalent). Secondary-market sale is a 'transfer' — the bond continues to exist; a new holder steps in.
Tax treatment of secondary-market sale:
• Holding period ≤ 12 months: STCG at slab rate (NRI: typically 30%+ on income above ₹10L per slab, but the actual rate depends on your total Indian income).
• Holding period > 12 months: LTCG at 12.5% per Section 112 (post-Finance (No 2) Act 2024 — indexation removed). Section 112A does NOT apply because SGBs are bonds, not 'equity' or 'equity-oriented MF units'.
TDS at source on secondary-market sale: Your broker (Zerodha, ICICI Direct, etc.) treats it as a capital-asset sale. Section 195 applies for NRIs. STCG at 30%+ withholding; LTCG at 12.5%+ withholding. The over-withholding is recoverable via ITR-2.
Why people exit early despite losing 47(viic):
• Need liquidity before the 8-year maturity • Gold price spike makes the gain attractive enough to take even with tax • Switching to physical gold or gold ETF
The cost-benefit: Holding to year 5+ (when RBI's premature-redemption window opens on coupon dates) gives you the Section 47(viic) exemption back — RBI's premature redemption is to the original subscriber, treated as redemption not transfer. So if you can wait until year 5, you preserve the exemption. If you must exit before year 5, secondary market is your only option (Section 47(viic) doesn't apply).
Practical note for NRIs: If you're considering exit, calculate the post-tax proceeds of secondary-market sale today vs the post-tax proceeds of hold-to-maturity or hold-to-year-5-premature-redemption. The Section 47(viic) exemption is often worth more than the time value of money saved by early exit.
Common mistakes — what to avoid
1. Selling on secondary market thinking the exemption still applies. The exemption is for redemption to RBI, not for transfer. Brokers don't always clarify this; many NRIs sell on NSE and are surprised by the broker's TDS.
2. Forgetting to declare SGB interest in ITR. RBI doesn't deduct TDS, so interest doesn't appear automatically on Form 26AS / AIS. You must declare the semi-annual interest credits in your ITR-2 IOS schedule. Missing this is a Section 270A under-reporting (50% of tax) or mis-reporting (200% of tax) risk on the undeclared interest. (Section 270A replaced Section 271(1)(c) from AY 2017-18.)
3. Buying SGBs (or trying to) after becoming NRI. RBI's subscription portal blocks non-residents at the application stage. Even if you somehow get the application processed (e.g., using a resident family member's PAN), the bond becomes irregular and may not be redeemable.
4. Gifting SGBs to NRI family members. The Section 47(viic) exemption attaches to original-subscriber status. If you (Resident) gift SGBs to your NRI son, his subsequent redemption is taxable (not exempt) because he's not the original subscriber. The cost-step-up rule for gifts taxed under Section 56(2)(x) is Section 49(4) — recipient's cost basis is the value taken into account under Section 56(2)(x) (for listed securities, the FMV on the date of receipt determined per Rule 11U).
5. Receiving SGBs by inheritance and assuming the exemption. The exemption survives inheritance per practitioner consensus, but CBDT has not formally clarified. If you're an NRI inheriting SGBs from a Resident parent, get a CA opinion before relying on Section 47(viic) for a large redemption.
6. Confusing SGBs with Gold ETFs / physical gold for tax. Listed Gold ETF units — post-Finance (No 2) Act 2024 (effective 23 July 2024), treated as long-term capital asset after 12 months holding; LTCG taxed at 12.5%. Physical gold and unlisted gold MFs — 24-month holding period for LTCG at 12.5%. SGBs are structurally more tax-efficient because of the 47(viic) exemption on redemption.
7. Repatriating SGB redemption proceeds without 15CB. Like any NRO outward remittance > ₹5 lakh, the redemption proceeds need Form 15CA + 15CB before the bank releases the funds. Many NRIs assume the funds are 'tax-free so no paperwork needed' — the FEMA paperwork is independent of tax status. CA-certified 15CB confirms the source and tax-paid status; bank releases against it.