The Union Budget 2026 has introduced a significant clarification in the taxation of Sovereign Gold Bonds (SGBs), narrowing the scope of capital gains tax exemption that investors have long associated with these instruments. While initial reactions suggested that SGBs may have lost their tax-free status altogether, a closer reading of the Budget provisions reveals that the exemption continues—but only under clearly defined conditions.
Earlier Position on SGB Taxation
Under the earlier tax regime, individual investors who held Sovereign Gold Bonds until maturity were exempt from paying capital gains tax on the appreciation in gold prices. This exemption applied irrespective of how the bond was acquired. As a result, even investors who purchased SGBs from the secondary market—such as stock exchanges—could enjoy tax-free gains, provided they held the bonds until redemption.
This practice went beyond the original intent of the scheme, which was designed primarily to encourage long-term savings in gold through direct subscription at the time of issuance.
What Budget 2026 Has Clarified
The Union Budget 2026 has now explicitly restricted the capital gains tax exemption. In her Budget speech, the Finance Minister stated that the exemption would apply only when Sovereign Gold Bonds are:
- Subscribed to by an individual investor at the time of the original issue by the Reserve Bank of India, and
- Held continuously by that investor until redemption on maturity.
The government has also clarified that this condition will apply uniformly to all SGB issuances by the RBI, removing any scope for varying interpretations across different bond series.
Impact of the Change After Budget 2026
Following this amendment, merely holding an SGB until maturity will no longer be sufficient to claim tax-free capital gains. The manner and timing of acquisition now play a decisive role.
Investors who buy SGBs from the secondary market—whether through stock exchanges or private transactions—will no longer qualify for capital gains tax exemption at maturity. Any gains arising on redemption for such investors will be taxed in accordance with applicable capital gains provisions.
Tax experts point out that if the holding period qualifies as long-term, the gains may be taxed at 12.5%. If sold earlier or if other conditions apply, the tax liability could be higher depending on the investor’s income slab.
Ankit Jain, Partner at Ved Jain & Associates, noted that investors who relied on secondary market purchases to achieve tax-free maturity will now face taxation on gains, and that the new rule applies across all RBI bond series without exception.
What Remains Unchanged for Original Subscribers
For investors who subscribed to Sovereign Gold Bonds at the time of original issuance and continue to hold them until maturity, the tax treatment remains exactly the same as before.
Their capital gains on redemption will continue to be fully exempt from tax. Additionally, the 2.5% annual interest earned on SGBs will remain taxable as income under the applicable slab rate, just as it was under the earlier framework.
Illustration to Understand the Revised Tax Treatment
Consider a scenario where gold prices rise substantially and an investor earns a capital gain of ₹10 lakh on an SGB.
- Investor A, who subscribed to the SGB at the time of original issue and holds it until maturity, will pay no capital gains tax on the ₹10 lakh gain.
- Investor B, who purchased the same SGB from the secondary market and holds it until maturity, will now be liable to pay capital gains tax. If the gain qualifies as long-term, tax at 12.5% would apply, resulting in a tax outgo of ₹1.25 lakh.
If Investor B sells the bond before maturity or falls into a higher tax bracket, the effective tax burden could increase, depending on individual circumstances.
Expert Views on the Policy Shift
Rajesh Sivaswamy, Senior Partner at King Stubb & Kasiva, Advocates and Attorneys, explained that the amendment removes long-standing ambiguity regarding secondary market transactions and realigns the tax benefit with the original policy objective of encouraging long-term investment in sovereign-backed savings instruments.
He added that the uniform application across all SGB issuances provides certainty and consistency, making tax planning clearer for investors going forward.
Kunal Savani, Partner at Cyril Amarchand Mangaldas, observed that the change reinforces the character of SGBs as a long-term savings product rather than a vehicle for tax-efficient trading. He also noted that since the amendment is prospective, investors who already hold SGBs acquired from the secondary market may still explore limited arbitrage opportunities, depending on timing and facts.
Will Investors End Up Paying More Tax?
Investors will face higher tax liability only if they acquired SGBs from the secondary market or choose to exit before maturity. For original subscribers who remain invested until redemption, the tax advantage continues without dilution.
The key takeaway from Budget 2026 is that holding an SGB till maturity alone is no longer enough. The eligibility for tax exemption now depends squarely on subscribing at the time of issue and maintaining uninterrupted ownership until maturity.
The Bottom Line
The Union Budget 2026 has not eliminated the tax-free status of Sovereign Gold Bonds but has clearly narrowed its availability. SGBs remain tax-efficient for long-term investors who participate at the time of issuance and stay invested until maturity. Others must now factor in capital gains tax when assessing returns, marking a decisive shift in how these instruments are positioned within the broader investment landscape.
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