TL;DR: the three SGB scenarios and their tax treatment
Scenario 1: Hold to maturity (8 years), redeem to RBI. Capital gain on redemption = redemption value (gold price at maturity) MINUS cost of acquisition (issue price you paid). This capital gain is exempt if you subscribed to the bond at its original issue and held it continuously until RBI redeemed it at maturity. For redemptions up to 31 March 2026 the rule was Section 47(viic) of the Income-tax Act 1961, which covered any individual holder. From tax year 2026-27 it is Section 70(1)(x) of the Income-tax Act 2025, as amended by the Finance Act 2026, which covers only that original subscriber. The 2.5% p.a. fixed interest paid semi-annually is fully taxable as Income from Other Sources (IOS), with no exemption on the interest.
Scenario 2: Premature redemption to RBI (from year 5, on coupon dates). Up to 31 March 2026 this was exempt under Section 47(viic). On or after 1 April 2026 it is taxable, because Section 70(1)(x) now covers only redemption at maturity, even for the original subscriber. The gain is long-term (held over 12 months) and taxed at 12.5% without indexation under Section 197 of the Income-tax Act 2025 (formerly Section 112). Pro-rata interest is also taxable.
Scenario 3: Sell on the exchange (NSE / BSE, SGBs are listed). This is a TRANSFER, not a redemption, and no exemption applies to the seller. Capital gain is taxable: STCG (12 months or less) at slab rate, LTCG (over 12 months) at 12.5% under Section 112 (Section 197 of the Income-tax Act 2025 from tax year 2026-27; indexation removed by the Finance (No. 2) Act 2024). A buyer on the exchange cannot claim the exemption on a redemption in tax year 2026-27 or later, even if they hold to maturity, because they did not subscribe at original issue.
Statutory note: the old Section 47(viic) did not say original subscriber, so up to 31 March 2026 any individual holder at the RBI redemption could claim it. The Finance Act 2026 amended Section 70(1)(x) of the Income-tax Act 2025 to require subscription at original issue and a continuous hold to redemption at maturity, from tax year 2026-27.
NRI specific: NRIs cannot subscribe to SGBs. But if you subscribed at issue as a resident and later became an NRI, you can continue to hold and redeem at maturity, and the exemption still applies to you. The test is how you acquired the bond and how you exit, not your residency.
Interest taxation specifics: 2.5% p.a. fixed on the issue value, paid semi-annually to your linked bank account. TDS is not deducted on SGB interest, as RBI's SGB FAQs state. You declare the full interest in your return as IOS. For NRIs, Section 195 technically applies, but the operational position is to pay gross. Report it and pay self-assessment tax if any is due.
Why the exemption exists and what it covers
Section 47(viic) was inserted into the Income-tax Act 1961 by the Finance Act 2016 (from AY 2017-18) to make SGBs more attractive to retail investors than physical gold.
The principle: redemption (RBI redeems the bond at the prevailing gold price and pays the holder) is NOT treated as a 'transfer' for capital-gains purposes. Because it is not a transfer, no capital gain arises.
Text of Section 47(viic), the 1961 Act wording that applied up to 31 March 2026: 'Nothing contained in section 45 shall apply to ... (viic) any transfer of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, by way of redemption, by an assessee being an individual.'
The three conditions that apply now:
1. Individual only. HUFs, trusts, AOPs, companies and firms are not covered. If your HUF held the SGB, the redemption is a taxable transfer for the HUF.
2. Redemption only. A sale on the exchange is a transfer, not a redemption. The bond continues to exist, the buyer becomes the new holder, and the seller's exit is a capital-gain event.
3. Original subscriber, at maturity (from tax year 2026-27). Section 70(1)(x) of the Income-tax Act 2025, as amended by the Finance Act 2026, exempts the gain only if you subscribed at the original issue and held the bond continuously until redemption at maturity. Early redemption to RBI and bonds bought on the exchange no longer qualify.
Cost basis for a buyer on the exchange: what they actually paid on NSE / BSE, with the holding period running from their purchase date. For SGBs received as a gift that is taxed under Section 56(2)(x), Section 49(4) sets the recipient's cost 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 at maturity: YES, exempt if you subscribed at issue. Having subscribed at the original issue and held to maturity is what gives the exemption; current residency is not the test. At maturity RBI redeems the bond at the prevailing gold price, and the capital gain (gold price at maturity minus your issue price) is exempt under Section 70(1)(x) of the Income-tax Act 2025 (Section 47(viic) of the 1961 Act for a redemption up to 31 March 2026). An early redemption to RBI from 1 April 2026 is taxable.
Selling on the exchange as NRI: you can sell SGBs you already hold on NSE or BSE through your demat account. The capital gain on sale is taxable, because the exemption covers only redemption. LTCG (>12 months) at 12.5% per Section 112 (Section 197 of the Income-tax Act 2025 from tax year 2026-27). 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 did not subscribe at original issue, so your redemption in tax year 2026-27 or later is not exempt. A gift from a relative (a parent, for example) is not taxed under Section 56(2)(x), and you take over the giver's cost under Section 49(1), and the giver's holding period counts under Section 2(42A). 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 was, under the old Section 47(viic), treated as stepping into the original subscriber's shoes, because that clause set no original-subscriber condition. From tax year 2026-27 the successor provision, Section 70(1)(x) of the Income-tax Act 2025, requires subscription at original issue AND a continuous hold to redemption on maturity, and the CBDT has not said whether an heir meets that test. Treat the exemption on an inherited bond as uncertain and get a CA opinion before relying on it.
Worked example: resident who became a Dubai NRI
Concrete numbers. Priya subscribed to SGBs as a Bengaluru resident in 2018 and moved to Dubai (became an NRI) in 2022. Her bond matured in May 2026.
Subscription (2018, as a resident): • SGB 2018-19 Series I, subscribed at the original issue • Quantity: 100 grams (100 units, each one gram) • Issue price: ₹3,114 per gram • Total cost: ₹3,11,400
Holding period (2018 to 2026): • Interest: 2.5% p.a. × ₹3,11,400 = ₹7,785 a year, paid semi-annually • After 2022 the interest is paid to her NRO account • The interest is taxable IOS, and Priya declares it in each year's return • No TDS was deducted on the interest • With no other significant Indian income, the basic exemption covers it and her Indian tax is about zero
Redemption (4 May 2026, as an NRI): • RBI's final redemption price: ₹14,901 per gram • Redemption value: 100 × ₹14,901 = ₹14,90,100 • Capital gain: ₹14,90,100 − ₹3,11,400 = ₹11,78,700 • The capital gain is exempt. The redemption falls in tax year 2026-27, and Priya subscribed at the original issue and held to maturity, so Section 70(1)(x) of the Income-tax Act 2025 applies. • If she had bought the same bond on the exchange instead, the gain on this redemption, measured from her own purchase price, would be taxable at 12.5%.
Repatriation: • The redemption proceeds and interest land in her NRO account • NRO repatriation is subject to the USD 1 million per financial year limit (well within it here) • For a remittance on or after 1 April 2026 the forms are Form 145 and Form 146 (formerly Form 15CA and 15CB)
Dubai (UAE) tax position: • The UAE has no personal income tax, so the Indian position is the final position. • If Priya were US-resident, her US return would report the redemption gain and the interest under US rules, with credit for any Indian tax paid. Her SGBs are Indian assets, so they never go on Schedule FA of an Indian return.
Held to maturity by the original subscriber, an SGB still gives an exempt gain plus modest taxable interest. Exit any other way from 1 April 2026 and the gain is taxed.
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), no exemption applies.
Why: The exemption is for redemption (returning the bond to RBI for the gold-price equivalent), and from 1 April 2026 only redemption at maturity. A sale on the exchange is a transfer. The bond continues to exist and a new holder steps in.
Tax treatment of secondary-market sale:
• Holding period ≤ 12 months: STCG at your slab rate, which depends on your total Indian income.
• Holding period > 12 months: LTCG at 12.5% per Section 112 (Section 197 of the Income-tax Act 2025 from tax year 2026-27; 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 the exemption:
• 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: From 1 April 2026 only holding to the 8-year maturity preserves the exemption. Early redemption to RBI from year 5 is now taxed like an exchange sale held over 12 months: 12.5% without indexation. Before year 5, the exchange is your only exit.
Practical note for NRIs: If you are considering an exit, compare the post-tax proceeds of selling or redeeming early today with the tax-free proceeds of holding to maturity. If you subscribed at issue, the exemption at maturity is often worth more than the time value of exiting early.
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. From tax year 2026-27 the exemption needs subscription at original issue. If you (a resident) gift SGBs to your NRI son, his redemption is taxable because he did not subscribe at issue. As a gift from a relative it is not taxed under Section 56(2)(x), and he takes over your cost under Section 49(1), and your holding period counts under Section 2(42A).
5. Receiving SGBs by inheritance and assuming the exemption. That the exemption survives inheritance was the settled reading of the OLD clause; the Finance Act 2026 rewrite of Section 70(1)(x) makes it doubtful, and CBDT has not clarified. If you're an NRI inheriting SGBs from a Resident parent, get a CA opinion before relying on it 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 held to maturity by the original subscriber are more tax-efficient because the gain at maturity is exempt.
7. Repatriating SGB redemption proceeds without the forms. An outward remittance from NRO needs Form 145 (formerly Form 15CA) for a remittance on or after 1 April 2026, and where the amount is taxable, a CA's Form 146 (formerly Form 15CB). Many NRIs assume tax-free money needs no paperwork. This is income-tax paperwork under Section 195, and the bank asks for it before it releases the funds.