Sovereign Gold Bonds — what to do with your existing holdings as an NRI (and why you can't buy fresh)

Sovereign Gold Bonds are denominated in grams of gold and issued by the Reserve Bank of India on behalf of the Government of India under the Government Securities Act 2006. They were introduced in November 2015 as a fiat-currency alternative to physical gold ownership.

Mechanics:

• Issue price: Linked to the prevailing IBJA (India Bullion and Jewellers Association) reference rate at the time of subscription • Tenure: 8 years from date of issue • Interest coupon: 2.5% per annum on the initial investment value (not on current market value), paid semi-annually to the bondholder's linked bank account • Maturity payout: Linked to the IBJA gold reference rate at the time of redemption (8 years post-issue) — gain or loss reflects gold price movement over the holding period • Early redemption: Permitted from the 5th year onward, on coupon payment dates, with RBI as the redeemer • Secondary market: SGBs are listed on NSE and BSE — can be sold any time

Combined return profile: ~2.5% annual coupon + capital appreciation/depreciation in gold price. Over the 2015-2024 period, average annualised return was ~12-14%, reflecting both the coupon and gold's bull-run.

Scheme discontinuation (Budget 2025): The Government of India announced in the FY 2025-26 Budget that no fresh SGB tranches will be issued going forward, citing rising gold prices and rising government cost of borrowing. The scheme is being phased out. Existing tranches continue to be honoured by RBI through coupon payments, early-redemption windows, and final maturity — none of those are affected. This means the policy debate in this guide is mostly about how to handle existing holdings; fresh exposure is no longer available even to residents.

Per RBI's SGB Master Direction (most recently updated in 2024), the eligibility for fresh SGB subscription is:

'Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB. Eligible investors include individuals, HUFs, trusts, universities, and charitable institutions.'

NRIs are NOT eligible to subscribe to fresh SGB tranches. The 'persons resident in India' test is the FEMA Section 2(v) test — NRIs (FEMA non-residents) are excluded.

This hasn't always been the position — early tranches (Series I and II in 2015) had ambiguity. RBI clarified in subsequent tranches that only FEMA residents can subscribe.

What this means in practice:

• If you're already an NRI, you cannot apply for new SGB tranches issued after you became an NRI • If you were a resident when you applied (say, a 2018 tranche subscription) and subsequently became an NRI, the existing holding is grandfathered — you can continue to hold until early redemption / maturity per RBI's clarification • You can still BUY SGBs in the secondary market (NSE / BSE) as an NRI — the secondary market trading isn't restricted by FEMA-residency. But you can't subscribe to new RBI primary issuances.

Yes, you can continue. Per RBI's clarification, individuals whose residential status changes to non-resident after subscription may continue to hold the SGB until early redemption (post-5th-year) or maturity (8 years).

During your NRI holding period:

• 2.5% coupon continues to credit semi-annually — to the bank account you originally linked at subscription. If that account is now NRO (most common conversion path), the coupon credits to NRO. The coupon is taxable at slab rate (full slab; no special concession). • No TDS is deducted on the SGB coupon by RBI — Section 197A read with the SGB scheme rules. You report the coupon as 'Income from Other Sources' in your ITR-2 and pay tax at slab rate. • Section 285BA SFT reporting of the SGB holding is automated; the SGB appears in your AIS / Form 26AS each FY at the depository's reported value. • Schedule FA — not applicable. SGB is an Indian asset, not a foreign asset. No Schedule FA disclosure required. (Schedule FA is for ROR taxpayers' foreign assets.) • FBAR — not applicable. SGB is an Indian asset; FBAR threshold is foreign accounts only. The SGB itself isn't an 'account' — it's a bond holding in your demat. Probably not FBAR-reportable; consult your US tax advisor. • Form 8938 (FATCA) for US persons: SGB held in an Indian demat account that meets the foreign financial account definition CAN be reportable depending on aggregate threshold. The IRS guidance is unclear; conservative practice is to include it in Form 8938 reporting.

Section 47(viic) of the Income-tax Act: 'any transfer of a 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'.

Meaning: redemption of SGB at maturity (or via early-redemption-window after 5th year) is NOT regarded as a transfer for capital-gains purposes. Result: the entire gain — i.e., maturity value minus purchase price — is exempt from capital-gains tax in India.

Important conditions:

• The exemption applies only to individuals — not HUFs, trusts, partnerships, or other entity types. NRIs filing as individuals get the exemption. • The exemption applies only to redemption — i.e., bond surrendered to RBI. Sale on the secondary market is a regular transfer (capital gains taxable). • Both maturity redemption (after 8 years) and early redemption by RBI (after 5th year on coupon dates) qualify for Section 47(viic). The clause doesn't distinguish. • FA 2026 tightening (effective FY 2026-27): the redemption exemption is now restricted to the original subscriber of the bond. Persons who acquired the SGB through secondary-market purchase or off-market transfer and then redeem to RBI no longer qualify for Section 47(viic) on the redemption gain — even though the redemption is to RBI. For an NRI who subscribed as a resident and continues to hold, this is a non-issue (you ARE the original subscriber). For an NRI who bought existing SGBs on NSE/BSE and is hoping to redeem to RBI under 47(viic), the relief is no longer available from FY 2026-27 onward.

Worked example: NRI subscribed to a 2018 SGB tranche when she was a resident at issue price ₹3,500/gram for 100 grams (₹3.5L invested). She becomes an NRI in 2022. The bond matures in 2026 with IBJA reference rate at ₹6,800/gram (₹6.8L redemption value).

• Capital gain: ₹3.3L (₹6.8L − ₹3.5L) • Section 47(viic) exemption: applies — gain is exempt • 2.5% coupon over 8 years: ~₹70K total (taxable at slab rate during NRI years) • Net Indian tax: only on the coupon (slab rate), not on the principal gain • Redemption proceeds (₹6.8L) credit to her NRO account — subject to USD 1M / FY repatriation

Two paths to exit early:

A. Sell on NSE / BSE secondary market — any time after listing (typically ~14 days post-issue). The buyer is another investor, not RBI. The transfer IS a 'transfer' for tax purposes; Section 47(viic) does NOT apply to secondary-market sales.

• Held > 12 months: 12.5% LTCG under Section 112 (post-FA 2024 flat rate, no indexation) • Held ≤ 12 months: STCG at slab rate

Secondary-market liquidity for SGBs varies by tranche; older tranches with deeper retail interest trade at narrower spreads. Pricing usually tracks IBJA reference but can diverge by 1-3% based on liquidity / supply-demand.

B. Early redemption to RBI from 5th year onwards — on coupon payment dates only. The bondholder submits a request; RBI redeems at the prevailing IBJA reference rate. Section 47(viic) applies — the redemption gain is exempt — provided you are the original subscriber of the bond (FA 2026 condition for FY 2026-27 onwards). If you bought the SGB on the secondary market, you no longer get the redemption exemption.

If you have a choice between secondary-market sale (taxable LTCG) and early redemption to RBI (exempt under 47(viic), if you originally subscribed), the early-redemption path is materially better tax-wise for individuals who satisfy the original-subscriber condition.

For NRIs specifically: the early-redemption proceeds credit to your NRO account in INR. Repatriable up to USD 1M / FY per FEMA. Form 15CA Part D (since the redemption is exempt from Indian tax) for outbound transfer.

SGBs are a diversification product — gold price exposure with a small income kicker — not a pure capital-preservation product (gold is volatile) and not a high-growth product (long-term gold returns are typically below equities).

For NRIs the position is asymmetric:

• You can't buy fresh — the natural position is to manage existing holdings rather than build a new SGB allocation. • Existing holdings should be held to maturity (8 years) or early-redemption (5+ years) to capture Section 47(viic) — secondary-market sale forfeits the exemption. • Coupons (2.5% on initial investment) are slab-rate taxable in India — modest income; not the reason to hold.

Best for:

• NRIs who subscribed pre-becoming-NRI and want gold exposure without physical-gold storage / purity issues • Long-horizon NRIs comfortable holding 5-8 years for the Section 47(viic) maturity benefit • NRIs in high-bracket residence states where Indian-side capital-gains tax is the binding constraint — Section 47(viic) eliminates it

Worst for:

• NRIs who want fresh gold exposure — RBI subscription is closed; secondary-market purchase forfeits Section 47(viic) on later sale (only redemption to RBI gets the exemption, and you must hold to 5+ years for that). Often simpler to use Gold ETFs in your home country. • NRIs who need short-duration liquidity — pre-5-year exits are secondary-market only, with LTCG/STCG taxation • US NRIs — gold price gains are taxable on US 1040 as collectibles (28% rate) or capital gains depending on holding form. Indian Section 47(viic) doesn't help on the US side.

Compared to alternative gold exposure:

| Product | Gold price exposure | Income | India tax (gain) | India tax (income) | | --- | --- | --- | --- | --- | | SGB (held to maturity) | Yes | 2.5% coupon | Zero (Section 47(viic)) | Slab on coupon | | Gold ETF (Indian, post-Apr 2023 acquisition) | Yes | None | Slab-rate STCG regardless of holding period (Section 50AA) | N/A | | Physical gold | Yes | None | 12.5% LTCG / slab STCG | N/A; storage cost | | Gold mining stocks | Indirect | Dividends | Equity LTCG/STCG | Section 196A on dividends |

For NRIs with existing SGB holdings, the holding plan is straightforward: hold to redemption window (5+ years) or maturity (8 years), redeem to RBI, claim Section 47(viic) exemption. For new gold exposure, NRIs are usually better served by their home-country gold ETF or physical-gold position rather than navigating the SGB-secondary-market route.