Quick answer
Sovereign gold bond tax works in two separate parts. The 2.5% yearly interest is taxed every year at your slab rate. The gain on redemption is tax-free only for one group: investors who subscribed at the original RBI issue and held the bond till its full 8-year maturity. Since 1 April 2026, everyone else pays capital gains tax, even on maturity redemption.
Sovereign gold bond tax has two parts. The 2.5% yearly interest is taxed every year at your slab rate. The gain on redemption is tax-free only if you subscribed at the original RBI issue and held the bond till its full 8-year maturity. Since 1 April 2026, secondary-market buyers pay 12.5% long-term capital gains tax even at maturity.
What is a Sovereign Gold Bond?
A Sovereign Gold Bond (SGB) is a government security denominated in grams of gold. The Reserve Bank of India (RBI) issues it on behalf of the Government of India. You do not get physical gold. You get units that track the gold price, plus fixed interest.
The basic terms, set by the RBI, are simple:
- Tenor of 8 years, with an early exit option after 5 years on interest payment dates.
- Fixed interest of 2.5% per year on the original issue price, paid every six months.
- Minimum investment of 1 gram; an individual can subscribe up to 4 kg in a financial year.
- At maturity, the money is credited straight to your bank account. The redemption price is the simple average of the closing price of 999-purity gold for the three business days before maturity, as published by the India Bullion and Jewellers Association (IBJA).
One fact shapes everything else in this guide: the government has not issued a new SGB tranche since February 2024, and no issuance calendar has been announced for FY 2026-27. Today, a new buyer can only pick up existing SGB series on the stock exchange through a demat account. That single fact decides which tax rule applies to you.
How is sovereign gold bond tax charged? Two incomes, two rules
An SGB gives you two kinds of income, and the tax department treats them apart.
| Income part | Tax treatment |
|---|---|
| Interest: 2.5% per year on the issue price | Fully taxable every year as Income from Other Sources, at your slab rate |
| Gain: rise in gold price between purchase and exit | Depends on how and when you exit — see the tables below |
Is SGB interest taxable?
Yes, always. The 2.5% interest is taxable in the year you receive it, at your slab rate. It does not matter whether you later get tax-free maturity or not. There is no TDS on SGB interest, so the tax department does not deduct anything for you. You must report the interest in your return and pay the tax yourself, through advance tax if needed.
A quick check: on an investment of ₹50,000, the yearly interest is ₹1,250. At a 30% slab rate, the tax on one year of interest is ₹375, plus 4% cess — ₹390 in all. Small each year, but over 8 years it adds up to ₹10,000 of taxable interest on that same ₹50,000.
What changed in sovereign gold bond tax from 1 April 2026?
Before 1 April 2026, the rule was wide. Redemption of an SGB by an individual with the RBI was not treated as a transfer at all. That meant the gain was exempt whether you had subscribed at the original issue or bought the bond later on the exchange, and whether you redeemed at full maturity or early after 5 years.
Budget 2026 narrowed that exemption. From 1 April 2026 (assessment year 2027-28), the exemption survives only under a twin test:
- Original subscription: you subscribed to the bond at the original RBI issue.
- Continuous holding till maturity: you held that same bond without a break till its full 8-year maturity.
Fail either test, and the gain becomes taxable. The old, wide rule still applies to returns for AY 2026-27 — the Budget 2026 change does not apply to that filing year. But any redemption on or after 1 April 2026 falls under the new rule.
| What stayed the same | What changed from 1 April 2026 |
|---|---|
| 2.5% interest stays taxable at slab rate every year | Maturity exemption is no longer automatic |
| 8-year tenor, early exit after 5 years | Secondary-market buyers now pay tax even at maturity |
| No TDS on interest or redemption | Early redemption after 5 years is now taxable, even for original subscribers |
| Maturity price still set by the IBJA 3-day average | Only original subscribers holding till full maturity stay fully exempt |
Sovereign gold bond tax by exit route
What is the tax on SGB maturity redemption?
If you pass the twin test — original subscriber, held till full maturity — the gain on redemption stays fully exempt. This is the one route that still gives a zero-tax outcome.
If you bought the bond on the stock exchange and hold it till maturity, the gain is now taxable. Since SGBs are listed securities, a holding period of more than 12 months makes it a long-term capital gain, taxed at 12.5% without indexation. A holding of 12 months or less is a short-term gain, taxed at your slab rate.
What is the tax on early redemption of SGB after 5 years?
After 5 years, you can ask the RBI for premature redemption on an interest payment date. Before 1 April 2026, this early redemption was also exempt for individuals. After 1 April 2026, it is taxable — the exemption now needs full 8-year maturity. The gain is taxed as a long-term capital gain at 12.5% if you held for more than 12 months, which is the usual case for a 5-year exit.
What is the tax on selling SGB on the stock exchange?
Selling on NSE or BSE before maturity has always been taxable, and Budget 2026 did not change this route:
- Sold within 12 months: short-term capital gain, taxed at your slab rate.
- Sold after 12 months: long-term capital gain at 12.5%, with no indexation benefit.
In short: the exchange route was taxable before, and it stays taxable. What changed is that the RBI redemption route, once exempt for all, is now exempt only for original subscribers at full maturity.
Sovereign gold bond tax: three worked examples
Example 1: Original subscriber, held till maturity — gain exempt
You subscribe at issue: 10 units at ₹5,000 per gram = ₹50,000. At maturity, the price is ₹9,000 per gram, so you receive ₹90,000. The gain is ₹40,000, and it is fully exempt.
Interest over 8 years: ₹1,250 per year × 8 = ₹10,000, taxed at your slab each year. At a 30% slab, the total tax on interest is ₹3,000, plus 4% cess = ₹3,120. The gain itself costs you nothing in tax.
Example 2: Secondary-market buyer, held till maturity — gain taxed at 12.5%
You buy 10 units on the exchange at ₹8,000 per gram = ₹80,000. At maturity, the price is ₹9,500 per gram, so you receive ₹95,000. The gain is ₹15,000.
Under the new rule, this gain is taxable as a long-term capital gain: 12.5% of ₹15,000 = ₹1,875, plus 4% cess = ₹1,950. Under the old rule, this same gain would have been exempt. That is the real cost of the Budget 2026 change for exchange buyers.
Example 3: Original subscriber, early redemption after 5 years — now taxable
You subscribe at ₹5,000 per gram and redeem early after 5 years at ₹7,500 per gram. On 10 units, the gain is ₹25,000. Before 1 April 2026, this gain was exempt. On or after 1 April 2026, it is taxed at 12.5% = ₹3,125, plus 4% cess = ₹3,250 — because the bond did not run its full 8 years.
How to report SGB income in your ITR
- Interest: report under Schedule OS (Income from Other Sources) in ITR-2, ITR-3 or ITR-4, as applicable. Since no TDS is deducted, check your bank credits yourself — the interest will not show up as TDS in your AIS.
- Taxable capital gains: report under Schedule CG (Capital Gains). This covers exchange sales and any redemption that is taxable under the new rule.
- Exempt maturity redemption: strictly, an exempt redemption is not treated as income at all, since redemption is not a transfer. You are not forced to report it. Still, many filers disclose the proceeds under the Schedule EI (Exempt Income) for a clean record. Keep your RBI redemption advice and holding statement safe either way.
For AY 2026-27 returns, the old rules apply — Budget 2026 changes take effect only from AY 2027-28. If you redeemed in FY 2025-26, file under the old position. If you redeem in FY 2026-27 or later, apply the twin test first.
SGB vs gold ETF vs physical gold: tax at a glance
| SGB | Gold ETF | Physical gold | |
|---|---|---|---|
| Extra yearly income | 2.5% interest, taxable at slab | None | None |
| Maturity/exit gain | Exempt only for original subscribers at full maturity (from 1 Apr 2026) | Taxable | Taxable |
| LTCG rate | 12.5% without indexation when taxable | 12.5% after 12 months (listed security) | 12.5% after 24 months |
| Storage and making charges | None | Fund expense ratio | Making charges + GST + storage risk |
SGBs still beat other gold forms on one point: no other gold product pays you interest. But after Budget 2026, the tax-free maturity edge belongs only to original subscribers. If you are buying on the exchange today, compare SGBs with gold ETFs on price and liquidity, not on a tax exemption you will not get.
For a wider festive-season comparison, see our Dhanteras gold tax guide. For the general LTCG and STCG rates that apply to exchange sales, see our capital gains tax guide. And if you hold interest-paying instruments, the same yearly-tax logic applies — see how NSC interest is taxed.
Practical impact: what should you do now?
- If you are an original subscriber: holding till full maturity keeps the full exemption. Think twice before an early redemption after 5 years — since 1 April 2026, that exit now costs 12.5% on the gain.
- If you bought on the exchange: do not plan on tax-free maturity. Set aside 12.5% of the expected gain, plus cess, when you estimate your return.
- If you plan to buy now: you can only buy on the exchange, so price your return after tax. The 2.5% interest still helps, but it is taxable every year.
- Every holder: report the interest each year, even though no TDS is deducted. Skipped interest is the most common SGB filing mistake.
Frequently asked questions
Is sovereign gold bond tax-free at maturity?
Only in one case now. Since 1 April 2026, maturity gains are tax-free only if you subscribed at the original RBI issue and held the bond continuously till its full 8-year maturity. If you bought the bond on the stock exchange, the gain at maturity is taxed at 12.5% as a long-term capital gain.
Is SGB interest taxable?
Yes. The 2.5% yearly interest is fully taxable as Income from Other Sources at your slab rate, in the year you receive it. No TDS is deducted, so you must report it in your return yourself.
Can I redeem SGB before maturity, and is it taxed?
Yes, you can redeem early after 5 years, on an interest payment date, through the RBI route. Before 1 April 2026, this early redemption was exempt for individuals. From 1 April 2026, it is taxable at 12.5% as a long-term capital gain, because the exemption now needs full 8-year maturity.
Do I need to show SGB redemption in my ITR?
Interest must be shown under Schedule OS, and any taxable gain under Schedule CG. An exempt maturity redemption is not strictly reportable, since redemption is not treated as a transfer — but you may disclose the proceeds under the Exempt Income schedule for a clean record.
Can I buy sovereign gold bonds in 2026?
No new tranche has been issued since February 2024, and no calendar has been announced for FY 2026-27. You can still buy existing SGB series on the NSE or BSE through a demat account — but remember, exchange buyers do not get the tax-free maturity benefit under the new rule.
What is the tax if I sell SGB on the stock exchange?
If you sell within 12 months, the gain is a short-term capital gain taxed at your slab rate. If you sell after 12 months, it is a long-term capital gain taxed at 12.5% without indexation. This rule is unchanged by Budget 2026.
Official sources
- Reserve Bank of India — Sovereign Gold Bond Scheme details: https://www.rbi.org.in/
- Income Tax Department — return filing and schedules: https://www.incometax.gov.in/
- Central Board of Direct Taxes — tax law and circulars: https://www.incometaxindia.gov.in/
Reviewed by Asuthod Rathod, CA
Last updated: 30 October 2026
Disclaimer: This article explains tax rules in simple words for general information. Tax law changes often, and your exact tax depends on your full income and holding history. Check the official portals above or speak to a qualified tax professional before acting on any exit or redemption decision.
Editorial byline for eircicai income tax guides — covering the Income Tax Act, 2025, section renumbering, regime comparison, and deductions. Content is reviewed by Asuthod Rathod, CA.