SGB premature redemption today: Are 4x gains taxable after Budget 2026?

Tax rules for SGB premature redemption

• Redemption price for SGB 2019-20 IX and 2020-21 V set at Rs 15,440 per unit
• Tax-free gains possible for premature redemption before March 31, 2026
• From April 2026, only original subscribers get tax exemption at maturity

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The redemption price for premature exit of sovereign gold bonds 2019-20 Series IX and 2020-21 Series V, due on February 11, has been fixed at Rs 15,440 a unit but whether investors pay tax will depend on when and how they bought SGBs.

The returns are substantial. The 2019-20 Series IX was issued at Rs 4,070 a gram and the 2020-21 Series V at Rs 5,334. At the redemption price of Rs 15,440, investors are sitting on gains of roughly 3.7x and nearly 3x, respectively, excluding the 2.5 percent annual interest earned during the holding period.

The SGB 2019-20 Series IX were originally issued on February 11, 2020 and the 2020-21 Series V on  August 11, 2020. The request date for premature redemption by the investors for the series was from January 9 to  February 2.

Under the rules applicable till March 31, 2026, capital gains after five years remain tax-free for investors redeeming through RBI’s premature redemption window. Investors holding these tranches can exit without tax if they apply within the window by informing their bank or depository at least a month in advance.

The tax rules, however, will change from the new financial year, which begins April 1. The Budget 2026 says only primary investors who originally subscribed to SGBs at issuance will enjoy tax-free maturity proceeds. Investors who bought SGBs from the secondary market will no longer get the exemption, even if they hold the bonds till maturity or redeem after five years.

Harshvardhan Roongta, Founder, Fee Only Investment Advisers LLP, said, “Only those SGB tranches completing five years and having a premature redemption window before March 31 are eligible,” he said. “Because of the rule change, only four out of the 28 SGB series fall in this period, giving secondary-market investors in these tranches a final chance to claim tax-free gains.”

Sovereign gold bonds stand out because of sovereign backing and the added benefit of interest income over and above gold price appreciation. Having said that, their main drawback is liquidity. With fresh SGB issuances discontinued, liquidity is expected to weaken further. While they are tradable on exchanges, volumes tend to be thin and early exits may come at a discount.