Sovereign Gold Bonds: Are capital gains on premature redemption tax-free until March 31, 2026?

Capital Gains arise only when a capital asset is transferred. So there is no tax liability as long as there is no transfer of the capital asset. As per the provisions of the Income-tax Act, 1961, the redemption of the Sovereign Gold Bonds with RBI was not treated as a transfer and, therefore, no capital gains accrued to the SGB holder on its redemption.

Since the SGBs are listed on stock exchanges, they could be purchased from the secondary market in addition to subscribing at the stage of initial issue. The difference between the acquisition price and redemption price was not taxed, whether the bonds were originally subscribed or acquired from the secondary market.

Though the maturity period of the bonds was eight years, the scheme allowed premature redemption of these bonds at anytime after completion of five years from the date of issue of these bonds. The redemption on maturity or the early redemption after five years were tax-free.

The budget has proposed changes in the scheme of taxation of SGB. The amendment seeks to change the condition for taxation of capital gains on these bonds. As per the proposed amendment the capital gains after April 1, 2026 will be tax-free only for those investor of SGB who had acquired the same through initial subscription and held till maturity.

This amendment will become effective from 1 April 2026 and not immediately after announcement of the budget. The claim made by some of the finfluencers is partly true. Since bonds, which have completed five years from the date of issue, are eligible for early redemption. So, in case, the period of five years is already over for the SGB held by you, and you are eligible to offer the SGB for early redemption, the capital gains will come tax-free in your hands.

The option to tender the SGB for early redemption after five years cannot be exercised anytime after five years, but it can only be exercised at the due date for payment of half-yearly interest. So in case the interest payment date falls after 1 February, 2026 but before 31 March 2026, you will not have to pay tax on the profits made on such redemption.

The half-yearly payment dates fall between the small window. Please note that all the SGB which have completed five years may not be eligible for early redemption during this short window of two months.