Rising Gold Prices : Sold sovereign gold bonds at market highs? Here’s how to calculate your taxes

Rising Gold Prices

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Rising Gold Prices : When and how you sell your units determines your tax liability. While interest earned is taxable as per your slab, the money earned on rising gold price too is taxed if you do not hold till the bond matures. Indexation benefit is available on SGBs.

Rising Gold Prices ; Rising gold prices have forced sovereign gold bond (SGB) owners to rethink their strategy. Several stockbrokers told Moneycontrol that the bids for selling SGBs of the August and September 2024 series have been inching up ever since the yellow metal touched Rs 72,500 per 10 grams on April 14, 2024.

Around Rs 22.43 crore worth of SGBs changed hands on the National Stock Exchange on April 15. Rising Gold Prices

SGBs allow you to invest in gold in dematerialised form without the storage and purity issues linked to physical gold. It is true that the bonds once purchased mature only eight years later, but early encashment is possible through Reserve Bank of India after the fifth year from the date of issue on coupon payment dates. Rising Gold Prices

But you could also sell your SGBs on the stock market before the fifth year, if you hold SGB units in dematerialised form.

With March 28 having been the last redemption date via the RBI, there is hardly any window to cash in on the surge in gold prices driven by escalating geopolitical tensions. If you are planning to sell your SGB units on the exchanges or have just received the money by redeeming the eight-year-old investment in SGB2016 Series II bonds, it is essential to know the taxation applicable. Rising Gold Prices

This is because the RBI doesn’t levy taxes before payment of the money to an individual. However, you will need to pay taxes when filing your returns. Here’s what you need to remember. Rising Gold Prices

Tax Implications of Selling SGBs:

  • Interest Income: The interest earned on SGBs is taxable as income every half year, according to your income tax slab. There’s no exemption for this.
  • Capital Gains: This depends on how long you held the SGBs before selling:
    • Held till Maturity (8 years): If you hold the SGBs for the entire 8-year period, you are exempt from paying capital gains tax. This is a major benefit of SGBs.
    • Sold Before Maturity (Less than 3 years): This is considered short-term capital gains and is taxed at your marginal income tax rate. Rising Gold Prices

Calculating Capital Gains Tax (Sold Before 8 Years):

  1. Sale Price: This is the market price you received when you sold the SGBs.
  2. Purchase Price: This is the initial investment you made in the SGBs.
  3. Capital Gain: Sale Price – Purchase Price.
  4. Taxable Amount: The capital gain amount is taxed according to your income tax slab. Rising Gold Prices

Additional Points:

  • Indexation Benefit (Applicable if held more than 3 years): If you sold the SGBs after 3 years but before maturity, you can claim indexation benefits to reduce your capital gains tax. Indexation accounts for inflation, effectively lowering the profit amount and reducing your tax burden.
  • Securities Transaction Tax (STT): There’s also a Securities Transaction Tax (STT) applicable when you sell SGBs on the stock exchange. This is a separate tax levied on the transaction value. Rising Gold Prices

Recommendation:

  • Consult a tax advisor for personalized guidance on calculating your exact tax liability for selling SGBs before maturity. They can help you consider factors like your income slab, indexation benefits, and STT to determine the final tax amount. Rising Gold Prices

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