Buying gold during the festive season is a preferred trend among Indians and to facilitate this, the Government of India, in consultation with the Reserve Bank of India (RBI), has decided to issue Sovereign Gold Bonds twice in October. Although most people prefer to buy physical gold during the festive sessions, but Sovereign Gold Bonds are catching up with the gold bars and ornaments due to convenience of investment and redemption online, no cost of holding, no security issues like losing gold due to theft, burglary etc.
Moreover, Sovereign Gold Bonds provide 2.5 per cent annual interest payable semi-annually on the nominal value, while to keep physical gold safely in lockers, people need to pay locker rent and even need to invest some amount in fixed deposits, to get lockers in banks.
The interests on Sovereign Gold Bonds are, however, taxable as per the provision of Income Tax Act, 1961 (43 of 1961).
Continue with its decision to issue Sovereign Gold Bonds on monthly basis, the government will issue the bonds in six tranches from October 2019 to March 2020 as per the calendar specified below:
The Sovereign Gold Bonds are issued by Reserve Bank India on behalf of the Government of India and are sold through Commercial banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices (as may be notified) and recognised stock exchanges viz., National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange (BSE), either directly or through agents.
Only resident individuals, HUFs, Trusts, Universities and Charitable Institutions are allowed to invest in Sovereign Gold Bonds through cash (upto a maximum of Rs 20,000) or demand draft or cheque or electronic banking.
Currently, the maximum limit of subscription for Sovereign Gold Bond per financial year is equivalent to 4 kg of gold for individuals, 4 kg for HUFs and 20 kg for trusts and similar entities taking together bonds subscribed under different tranches and those purchased from the secondary market.
As for purchase of physical gold, documents like Voter ID, Aadhaar card/PAN or TAN /Passport will be required to complete know-your-customer (KYC) norms. However, quoting 'PAN Number' is must to invest in Sovereign Gold Bonds.
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The bonds are denominated in multiples of gram(s) of gold with a basic unit of 1 gram and are issued for a period of 8 years with exit option after 5th year to be exercised on the interest payment dates.
However, the investors will have the option to sale the bonds through stock exchanges as it become tradable on exchanges within a fortnight of the issuance on a date as notified by the RBI. Although, liquidity is still a concern.
Moreover, the investors will have to pay capital gain tax on such transfers through stock exchanges. But indexation benefits will be provided to long term capital gains arising to any person on transfer of bond.
Otherwise, the capital gains tax arising on redemption of SGB to an individual has been exempted, if the bonds are not sold through stock exchanges.
The redemption price of the Sovereign Gold Bonds will be determined on the redemption date on the basis of previous three working days simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association (IBJA) and will be paid in Indian rupees.