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Sovereign Gold Bond 2020-21 – Series VII Launched
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Government of India, in consultation with the RBI, has issued Sovereign Gold Bonds (SGB), 2020-21 Series VII. Applications for the bonds will be accepted between October 12, 2020 and October 16, 2020. The Certificate of Bond(s) will be issued on October 20, 2020. The issue price of the Sovereign Gold Bond for this Series has been fixed at Rs.5,001 per gram of gold for those who subscribe online and pay through digital mode and Rs.5,051  per gram for others. It has been decided to offer a discount of Rs.50 per gram on the nominal value of the Sovereign Gold Bond those who subscribe online and pay through digital mode.

The latest SGB issue comes at a time when gold prices have corrected over 12% from its August high of Rs 56,200 per 10 grams. Ten tranches of Sovereign Gold Bonds for an aggregate amount of Rs 2,316.37 crore (6.13 tonnes) have been issued by RBI during 2019-20.

Basic Details: 

  1. Interest Rate: The Sovereign Gold Bonds offer an interest rate of 2.50% per annum payable semi-annually. Interest will be credited semi-annually to the bank account of the investor. 
  2. Eligible Investors: The Bonds will be restricted for sale to resident Indian entities including Individuals, HUFs, Trusts, Universities, Charitable Institutions and minors applying (through their guardian).
  3. Minimum application criteria: 1 unit (i.e. 1 gram of gold). 
  4. Maximum application limit: Not be more than 4kg for individuals/HUFs and 20kgs for trusts per fiscal year (April-March). 
  5. Tenor: The tenor of the Bond will be for a period of 8 years with exit option after the 5th year of the date of issue and such repayments shall be made on the next interest payment dates. 
  6. Redemption price: The sovereign gold bonds will be redeemed for cash at the end of the investment tenure. Redemption will take place at the prevailing gold price (based on simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment, published by the IBJA), giving the investor the value of the bond plus capital appreciation/depreciation from increase/fall in gold price. 
  7. Premature redemption: From 5th year, investors can approach the concerned bank/Post Office/agent thirty days before the coupon payment date. Request for premature redemption can only be entertained if the investor approaches the concerned bank/post office at least one day before the coupon payment date. 
  8. Liquidity: Liquidity is available from secondary markets as these bonds are mandated to be listed on BSE and NSE. However, the liquidity of the past issues are quite low and restricted only to few tranches. 
  9. Nomination facility: Yes. Nomination and its cancellation shall be made in Form ‘D’ and Form ‘E’, respectively. 
  10. Loan against Bonds: Available. The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time. 
  11. Transfer: The Bonds shall be transferable by execution of an Instrument of transfer as in Form ‘F’. 
  12. Taxation: Interest on the Bonds shall be taxable as per the provisions of the Income-tax Act, 1961. Capital gains tax treatment (except in case of redemption) will be the same as that for physical gold (20% tax after indexation benefit if held for three years). TDS is not applicable on the bond interest/redemption proceeds. The redemption of these sovereign gold bonds by an individual will be exempt from capital gains tax. Long-term capital gains to any person on transfer of sovereign gold bonds shall be eligible for indexation benefits. 

Key benefits: 

  1. The issue price that is fixed at Rs.50 less than the nominal value for per gram for digital applications is beneficial for investors. This helps investors to get slightly higher returns than that of the gold price in the spot market. 
  1. Sovereign Gold Bonds deliver two streams of returns. One in the form of regular interest of (2.50% p.a.) on invested capital every six months and the other in the form of capital gains at the time of redemption in case the price at the time of redemption is higher. 
  2. SGBs can be used as collateral for loans. This bond is as liquid as physical gold and could be exchanged for money, albeit on loan basis, at the time of financial need. The bonds will be available both in demat and paper form. 
  3. In Union budget 2016, Finance Minister exempted capital gains tax on redemption on such bonds (under normal case, LTCG tax is levied 20% with indexation on gain). Indexation benefits will be provided to long term capital gains arising to any person on transfer of bond.   

What are the benefits of buying these bonds in comparison to Physical Gold and Gold ETF?

  

Is capital gain tax payable on gains in SGB? 

In case the SGBs are encashed by way of redemption by an individual from the RBI, no capital gains tax is payable. In case the SGBs are sold before the maturity date on the exchanges, then this exemption is not available. In such a case, the Capital Gains will be levied (Long term or Short term based on whether it is held for 3 years or more or less than 3 Years) at the applicable rates i.e. short term (at applicable rates to the investor) and long term (20% after indexation). 

 

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