An investor can receive interest, redeem a Sovereign Gold Bond (SGB) with the Reserve Bank of India, or sell it to another investor. Each event has a different income tax treatment. For AY 2026–27, the first step is to check when the income or transaction occurred: this return covers FY 2025–26, from 1 April 2025 to 31 March 2026.

That date matters because a later change to the SGB redemption exemption takes effect from 1 April 2026. It should not be applied to a redemption made during FY 2025–26 merely because the return is being filed in 2026. The Income Tax Department’s Budget 2026 FAQ states that the amendment applies from tax year 2026–27 onward.

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SGB tax treatment at a glance

The statutory redemption relief is specifically for an individual. It should not be assumed to apply to every category of SGB holder. Section 47(viic) describes a transfer by way of redemption of an RBI-issued SGB by an assessee who is an individual. 47

Interest is taxable even when redemption gains are not

SGBs carry interest at 2.5% a year on the initial investment amount, paid every six months. For an individual holding the bonds as an investment, that interest is generally reported under Income from Other Sources for the relevant year. The exemption associated with redemption does not extend to the interest payments. 

For example, if an investor’s initial investment was ₹2,00,000, the annual interest would ordinarily be ₹5,000. If the relevant interest payments were received during FY 2025–26, that ₹5,000 must be considered in the AY 2026–27 return, even if the bond itself was not sold or redeemed.

No TDS does not mean no tax. The RBI says tax is not deducted at source on SGB payments, while responsibility for complying with the income tax law remains with the bondholder. Investors should therefore reconcile the interest credits in their bank statements with the amount reported in the return. 

RBI redemption during FY 2025–26: What is exempt?

Under Section 47(viic) of the Income-tax Act, 1961, an individual’s transfer of an eligible SGB by way of redemption is not regarded as a transfer for capital gains purposes. Consequently, the appreciation realised on that redemption is not charged as a capital gain. The provision refers to redemption, rather than only to redemption at the end of the full eight-year term.

The distinction is practical. SGBs have an eight-year tenure, but the RBI permits premature redemption after the fifth year on specified interest payment dates. That RBI redemption route differs from selling the bond to someone else on an exchange. 

Suppose an individual acquired SGBs for ₹1,00,000 and received ₹1,65,000 when the RBI redeemed them in January 2026. The ₹65,000 appreciation is covered by the redemption treatment under Section 47(viic). Any SGB interest received during FY 2025–26 remains taxable separately.

Does buying an SGB on the stock exchange change the AY 2026–27 redemption rule?

The text of Section 47(viic) applicable to this period specifies an eligible RBI-issued bond, redemption, and an individual assessee; it does not state an original-subscriber condition. Accordingly, the later rule restricting the relief to qualifying original subscribers should not be read back into an RBI redemption that occurred before 1 April 2026. This conclusion follows from the pre-amendment statutory wording and the stated commencement date of the Budget 2026 change.

Investors should preserve both their purchase record and the RBI redemption statement. The route and date of exit determine which rule must be applied.

Sale before redemption: Calculate capital gains

An exchange sale is a sale to another investor, even if the bond would have qualified for redemption relief had the individual kept it until an eligible RBI redemption date. Section 47(viic) does not turn an exchange sale into a tax-free redemption. The gain or loss must instead be calculated using the sale proceeds, acquisition cost and eligible transfer expenses, then classified under the capital gains rules applicable to the particular bond and transaction. 

For example, if SGBs bought for ₹1,00,000 were sold on an exchange during FY 2025–26 for ₹1,40,000, the ₹40,000 difference is a starting point for the capital gains calculation. It is not sheltered merely because the security sold was an SGB. Whether the resulting gain is short term or long term, and the rate that applies, require checking the bond’s listing status, acquisition and sale dates, and the relevant statutory provisions.

The Income Tax Department describes 12.5% without indexation as the general long-term capital gains rate for transfers after 23 July 2024. Short-term gains outside a special-rate provision are generally taxed at normal applicable rates. Its guidance also discusses the treatment of SGBs in the context of indexation, so an investor should verify the calculation applicable to their particular transfer rather than assume that every SGB sale attracts one universal rate. The ₹1.25 lakh long-term capital gains threshold under Section 112A should not automatically be applied to an SGB sale; that section concerns specified equity-related assets. 

How to report SGB transactions in the ITR

For AY 2026–27, the reporting approach follows the nature of the receipt:

Interest: Include taxable SGB interest in the return’s Income from Other Sources section. Check the actual credits and the period to which they relate.

Exchange sale or other taxable transfer: Complete the relevant entries in Schedule CG, using the purchase and sale records to compute the gain or loss.

Eligible redemption by an individual: Do not report the appreciation as a taxable capital gain. If using a return with Schedule EI, consider the appropriate disclosure of the amount not chargeable to tax under Section 47(viic), consistently with the form’s instructions and available fields. Section 47 treats the redemption as not a transfer; it is more precise to identify that provision than to describe the appreciation as exempt SGB interest.

The department’s ITR-2 manual identifies separate schedules for Capital Gains, Other Sources and EI. ITR-2 is generally available to individuals and HUFs with capital gains who do not have income chargeable under the head “Profits and Gains of Business or Profession”; the correct form depends on the taxpayer’s complete income profile.

Before filing, investors should reconcile the SGB holding certificate or demat statement, purchase contract note, interest credits, sale contract note or RBI redemption advice, and the figures available in their tax records. A bank credit showing redemption proceeds must be distinguished from an interest credit: the two amounts can arrive together at maturity but have different tax consequences. The RBI confirms that the final interest is payable along with the principal on maturity. 

What changes from 1 April 2026?

The Income Tax Department’s Budget 2026 FAQ says the amended redemption benefit applies only where the SGB has been held continuously until redemption on maturity, and states that the change takes effect from 1 April 2026, applying to tax year 2026–27 and subsequent tax years. This is relevant to later transactions, not to the FY 2025–26 transactions being reported in ITR AY 2026–27. Investors should therefore avoid applying a rule from a later tax year to an earlier redemption, or applying the earlier rule automatically to a redemption after the change takes effect. 

For the current return, the clearest test is the exit route: interest is taxable; an eligible RBI redemption by an individual falls under Section 47(viic); and a sale to another buyer requires a capital gains calculation.

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