ITR Filing: Do you need to declare Sovereign Gold Bond redemption in your income tax return?

SGB Tax Rules

Sovereign Gold Bonds (SGBs) is one of the popular ways of investing in digital gold. It is exempt from capital gains tax and not considered a transfer under the Income Tax Act. But do investors need to declare redemption amount in their ITR?  What happens when sold on an exchange? Do gains become taxable? Ask Wallet Wise query answers how SGB income is disclosed and taxed in various scenarios.

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I had invested in SGBs in 2016–17 and received the maturity proceeds during 2024–25. As per the terms of issue, the maturity proceeds of these bonds are exempt from capital gains tax if redeemed on maturity. My question is: Am I required to declare Long Term Capital Gains (LTCG) on these bonds in my ITR-2 for AY 2025–26? If so, where? I do not find any provision in Schedule Capital Gains of ITR-2.

Expert Advice: SGBs are one of the best ways to invest in gold. In addition to offering 2.50% interest on the issue price, any appreciation in gold prices comes to you tax-free if you hold the bonds until redemption. Although the tenure of SGB is eight years, the RBI allows investors to request early redemption any time after five years, on the next interest payment date. The exemption from capital gains applies to all SGBs surrendered for redemption, whether originally subscribed or bought from the secondary market.

The redemption of SGBs by an individual with the RBI is not treated as a “transfer” under Section 47(viiic) of the Income Tax Act. Capital gains arise only on the transfer of a capital asset. Since redemption is not considered a transfer under tax law, there is no question of capital gains accruing to the investor. However, if the bonds are sold on a stock exchange platform or transferred privately, the profits would be treated as capital gains, short-term if sold within one year, or long-term if held longer. Long-term capital gains were taxable at 10% without indexation or 20% with indexation if redeemed before 23rd July 2024. For redemptions on or after 23rd July 2024, LTCG is taxable at 12.5% without indexation.

As discussed, profits made on redemption of SGBs are not treated as income at all since redemption is not considered a transfer. Therefore, there is no need to report such a transaction in the ITR. If you wish to be extra cautious, you may disclose the redemption proceeds under the “Exempt Income” (EI) schedule of the ITR, although strictly speaking, it is not treated as income in the first place.

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