Explained | Sovereign Gold Bond scheme to open next week: How is issue price calculated? Are these bonds taxable?
SGB calculator: The issue price of these gold bonds is linked with the market price of the yellow metal in the bullion market.The issue price is fixed based on a simple average of the closing prices of gold of 999 purity of the three working days preceding the day of issuance.
Sovereign Gold Bonds 2023: Sovereign Gold Bonds (2023-24 Series III) will open for subscription for five trading days, from December 18 to December 22. Many wealth planners find these gold bonds to be an effective instrument to use the precious metal as an investment avenue.The RBI, which issues the gold bonds on behalf of the Government of India under the SGB scheme, is yet to announce the issue price for the upcoming tranche.
Ever wondered how the issue price of the SGB units is calculated? Who decides the price of sovereign gold bonds? Are these bonds taxable?
Here’s a lowdown on all such aspects of the popular gold-linked bond scheme:
How SGB gold price is calculated
The issue price of these gold bonds is linked with the market price of the yellow metal in the bullion market.The issue price is fixed based on a simple average of the closing prices of gold of 999 purity of the three working days preceding the day of issuance.
The prices published by Mumbai-based industry body India Bullion and Jewellers Association (IBJA) are taken into consideration for calculating this simple average.Here one must note that the bonds are denominated in multiples of grams of gold, with each unit holding the value of one gram of gold at the market price.Let's understand the calculation with an example. Let’s say the rates of gold (999 purity) for the three trading days preceeding the day of issuance are Rs 5,000, Rs 5,200 and Rs 4,840. In this case, the applicable issue price of the tranche will be set at an Rs 5,013.33 per unit.
Here is the calculation:
(5,000 + 5,200 + 4,840)/3
Remember: The issue price of the SGBs will be lesser by Rs 50 per unit for the investors subscribing online and paying through digital mode.
Are SGBs taxable?
The interest applicable to SGB holdings—SGB investors are eligible for 2.5 per cent interest on their holdings over and above the market-linked return—is taxable. “The interest on SGBs shall be taxable as per the provision of Income Tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual is exempted. The indexation benefits will be provided to long term capital gains arising to any person on transfer of bond,” according to an official statement.
What it simply means is that while no tax deduction benefit is available on a lump sum deposit to purchase SGBs under income tax laws, the 2.5 per cent interest portion is also subject to tax. Investments in SGB are subject to long-term capital gains tax in case of pre-mature withdrawal, i.e. before eight years from the date of entry.
Income tax assessees are required to declare the amount of money received as interest in the income from other sources’ section while filing an ITR, and bear the income tax as per the applicable slab. SGB investments are exempt from capital gains tax when held till maturity.
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02:28 PM IST