Moment guide · FY 2026-27

I am selling my Sovereign Gold Bonds

Is SGB maturity redemption tax-free?

Sovereign Gold Bond redemption at 8-year maturity is fully exempt under section 10(47). If you sell on the exchange before maturity, it is a capital gain: 12.5% LTCG above 12 months under section 112A, or 20% STCG within 12 months under section 111A. The 2.5% annual interest is taxable each year even though no TDS is cut on Demat-held bonds.

The #1 trap

Selling SGBs early on the exchange and then calling the profit 'tax-free' — only the 8-year maturity redemption is exempt under section 10(47); an early sale is a normal capital gain. The interest of 2.5% a year is taxable as income in the year received, even though no TDS is deducted on Demat-held SGBs, so taxpayers often miss reporting it.

Ramesh, who holds SGBs from two tranches

Ramesh bought 30 grams of SGBs in the 2021 tranche at ₹4,777 per gram, paying ₹1,43,310, and another 20 grams in the 2023 tranche at ₹6,100 per gram, paying ₹1,22,000. His 2021 tranche matures in 2029, and on maturity the redemption at the prevailing gold price, say ₹7,800 per gram, gives him ₹2,34,000 for that tranche, and that entire redemption is fully exempt under section 10(47) — no capital gains tax on maturity redemption. In 2026, however, he sells the 2023 tranche on the exchange at ₹7,900 per gram because he needs liquidity. The sale proceeds are 20 grams multiplied by ₹7,900, which is ₹1,58,000. His cost was ₹1,22,000, so the capital gain is ₹36,000. Because he held the bonds for more than 12 months, the gain is long-term under section 112A and taxed at 12.5%, with the ₹1.25 lakh annual exemption meaning he pays nothing on this ₹36,000 if he has no other 112A gains that year. If he had sold within 12 months, the gain would be short-term under section 111A at 20%, which is ₹7,200. Meanwhile the 2.5% annual interest on both tranches, about ₹3,600 a year on the 2021 holding and ₹3,050 on the 2023 holding, is taxable as income from other sources in each year it is credited, and because the bonds are held in Demat, the RBI does not deduct any TDS, so Ramesh must report the interest himself in his ITR. Ramesh keeps the tranche allotment letters and sale contracts to compute each gain correctly. A quick call with us dials in the final figure. Ramesh also remembers that the ₹1.25 lakh exemption under section 112A is shared across all eligible listed-equity long-term gains in the year, so if he also books gains on listed shares, the SGB gain and the share gains together consume the single threshold. He tracks the interest accrual dates: the 2.5% interest is paid half-yearly, and each credit is taxable in the year of receipt, with no TDS because the bonds are held in Demat. If he had held the SGBs in paper form, the interest would still be taxable and any TDS shown on the interest warrants would be creditable in his return. A quick call with us dials in the final figure.