RBI makes important announcement on premature redemption of Sovereign Gold Bonds, check details here

The premature redemption price for Sovereign Gold Bonds (SGB) 2017-18 Series IV and 2018-19 Series II tranches has been announced by the Reserve Bank of India. The redemption of the SGBs was due on Tuesday, April 23.

As per the official notification, premature redemption of SGBs is permitted after the fifth year from the date of issue of the bond on the date on which interest is payable.

The redemption price for SGBs is calculated based on the simple average of the closing gold price of 999 purity of the previous three business days from the date of redemption as published by the India Bullion and Jewellers Association Ltd (IBJA).

The price for premature redemption of bond, due starting from April 23, has been fixed at ₹7325 per unit of SGB based on the simple average of closing gold prices for April 18, 19, and 22.

The bank regulator also fixed the price for early redemption SGB 2017-18 Series III on April 16. The early redemption price for the SGB has been fixed at ₹7260 per unit, calculated based on average closing gold prices over the previous three business days, RBI said in a release on April 23.

What is the SGB scheme and how much can you invest?

The SGB scheme was introduced under the Government Securities Act 2006 to offer investors an option to invest in gold without the need to own it physically. The scheme was open to different investors including individuals, trusts, charitable institutions, and universities.

Sovereign Gold Bonds (SGBs) are issued in units of one gram of gold and multiples. The minimum subscription for SGBs is one gram.

An individual is allowed to purchase gold bonds of a maximum of 20 kgs in a financial year. The maximum investment permitted for similar entities is 20 kg.

SGBs are sold through financial institutions like banks, Stock Holding Corporation of India Limited (SHCIL), designated Post Offices (as may be notified) and recognised stock exchanges, either directly or through agents.

The payment for purchasing such bonds can be made in cash for up to ₹20,000. For investments over this limit, the payment has to be made via demand draft or cheque or online banking.

How does premature redemption of SGBs work?

The interest payment on SGBs in such cases can take up to 10 days from the last date of premature redemption. This is because the request for such redemptions has to be submitted to the Receiving Office or Depository through the Depository Participant (if held in the Demat account) at least 10 days before the next interest payment date.

Taxation on redemption of SGBs

The gains made on investments in SGBs are discounted from capital gains. However, long-term capital gains (LTCG) from the transfer of SGBs may attract capital gains tax.

Provisions of the Income Tax Act of 1961 (43 of 1961) apply to the interest earned on the investment in Sovereign Gold Bonds. The gains from the redemption of SGBs attract LTCG tax at 20% with indexation benefit or 10% tax without indexation.