Sovereign Gold Bonds (SGBs) are gold-linked government securities issued by the Reserve Bank of India (RBI) on behalf of the Government of India. They were introduced as a regulated alternative to physical gold investment in India, offering transparency, safety, and predictable taxation (which has now changed post Budget 2026).

Each Sovereign Gold Bond represents 1 gram of gold, and its value is directly linked to the prevailing market price of gold.

In addition to price appreciation, investors earn 2.5% annual interest, credited semi-annually.

Key Features of Sovereign Gold Bonds

• Issued by RBI with sovereign guarantee
• Eliminates risks of storage, theft, and purity
• 8-year tenure, with early redemption after 5 years
• Listed and tradable on stock exchanges
• Held in demat or certificate form
• Interest income taxable; capital gains tax depends on conditions

RBI & FEMA Rules for NRIs Investing in Sovereign Gold Bonds

Under the Foreign Exchange Management Act (FEMA), 1999, the RBI has laid down clear restrictions on investment in Sovereign Gold Bonds (SGBs) as part of NRI Investment in India.

Can NRIs Invest in Sovereign Gold Bonds?

No. NRIs are not permitted to make fresh investments in Sovereign Gold Bonds.

This restriction covers:

• Subscription to new SGB issuances
• Purchase of Sovereign Gold Bonds from the secondary market

However, NRIs who invested in SGBs while they were resident Indians are permitted to continue holding those bonds, subject to RBI and FEMA conditions.

Major Update: Sovereign Gold Bonds Taxation After Budget 2026

What Changed in Union Budget 2026?

Union Budget 2026 has fundamentally altered the tax treatment of Sovereign Gold Bonds, especially at the time of redemption.

Until now, capital gains arising on redemption of SGBs at maturity were fully exempt from tax, irrespective of how the bonds were acquired.

This blanket exemption has now been withdrawn.

New SGB Tax Rules Under Finance Bill, 2026

As per the amendments proposed under the Income-tax Act, 2025, the capital gains tax exemption on redemption of Sovereign Gold Bonds:

• Will be available only where the bonds are subscribed at the time of original issuance by the Government and are held continuously until maturity.

This amendment applies uniformly to all Sovereign Gold Bonds issued by the RBI, irrespective of the year of issuance.

Section 70(1)(x) – Income-tax Act, 2025 Explained

• Capital gains on SGB redemption are exempt only for original subscribers
• Investors who acquire SGBs from the secondary market lose the exemption
• Early or premature redemption becomes taxable
• The manner of acquisition is now critical for tax determination

Who Is Most Impacted by the SGB Tax Amendment?

The Budget 2026 amendment primarily impacts:

• Investors purchasing Sovereign Gold Bonds from the secondary market
• NRIs holding SGBs purchased earlier as resident Indians
• Investors opting for early redemption after 5 years
• Individuals using SGBs as short-term trading or arbitrage instruments

Taxability of Sovereign Gold Bonds Redeemed On or After 01 April 2026

Capital Gains Tax Rates Applicable to Taxable SGBs

Where the exemption is not available:

• Long-Term Capital Gains (LTCG): 12.5%
• Short-Term Capital Gains (STCG): Taxed at applicable slab rates
• Plus surcharge and health & education cess
• Indexation benefit not available

Why Did the Government Restrict the SGB Tax Exemption?

Over the years:

• Sovereign Gold Bonds increasingly became trading instruments
• Heavy secondary market activity resulted in significant revenue leakage
• The original objective of long-term gold investment was diluted

Budget 2026 aims to plug this loophole and realign SGBs with fiscal and policy objectives.

Impact of Budget 2026 on NRIs Holding Sovereign Gold Bonds

For NRIs who invested in SGBs while they were resident Indians:

• Redemption is no longer automatically tax-free
• Exemption applies only if the bond was originally subscribed and held till maturity
• Any deviation may result in capital gains tax exposure

This makes advance NRI tax planning essential for NRIs holding Sovereign Gold Bonds.

Frequently Asked Questions

Q.1 Is Sovereign Gold Bond redemption tax-free after Budget 2026?

Ans: if the SGB was subscribed at the time of original issue and held continuously till maturity.

Q.2 Are NRIs allowed to invest in Sovereign Gold Bonds?

Ans: NRIs are not permitted to make fresh investments but may continue holding bonds purchased as resident Indians.

Q.3 Are SGBs bought from the secondary market tax-free at maturity?

Ans: No. After Budget 2026, capital gains on such bonds are taxable.

Q.4 What is the capital gains tax rate on taxable SGBs?

Ans: LTCG at 12.5% and STCG at slab rates, plus surcharge and cess.

Strategic Takeaways for Investors & NRIs

• Sovereign Gold Bonds are no longer universally tax-free
• The source and timing of acquisition now determine tax treatment
• Secondary market SGB investments have lost their historical tax advantage
• NRIs should reassess gold exposure and redemption timing

Need Expert Advice on SGB Taxation or NRI Investments?

Dinesh Aarjav & Associates specialises in NRI consultancy services, including:

• NRI tax advisory & FEMA compliance
• Capital gains taxation and optimisation
• India–overseas investment structuring

Get in touch with our experts to review your Sovereign Gold Bond holdings before redemption and avoid unexpected tax exposure.

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Budget 2026–27: Major Tax & Compliance Relief for NRIs – LRS, Foreign Assets Disclosure, ITR Revision & More