What are RBI Gold Bonds & are they Taxable?

Gold and India share a special bond that isn’t just cultural but deeply financial, too. For centuries, from family heirlooms to auspicious festivals, gold has always symbolized safety, stability, and wealth. But over time, the way we invest in it is changing, and the Reserve Bank of India’s Sovereign Gold Bonds (SGBs) offer a modern, secure alternative. Yet for many, one question remains: How are they taxed?

So, let us understand Gold Bonds and their ins and outs.

1. What Are Sovereign Gold Bonds (SGBs)?

Imagine holding gold without fearing a locked locker or purity doubts. That’s what SGBs are: government-backed bonds denominated in grams of gold, issued by the RBI on behalf of the Indian government. Instead of jewellery, you’re holding papers (or digital entries), but the value linked to gold is very real.

Here’s what makes them stand out:

• Tenure: 8 years, with exit options after 5 years.
• Interest: Earn 2.5% annually, paid semiannually in addition to price appreciation.
• Tradability: Listed on stock exchanges if held in demat form and redeemable with the RBI.

These are not late-night gold ads; they’re stable instruments with government backing.

2. What Problems Did SGBs Solve?

India’s gold habits are clear: we buy, store, and worry about theft, purity, and costs. SGBs directly tackle these pain points:

1. No making charges or GST, unlike jewellery, which often adds up to 10 to 15% extra.
2. Guaranteed annual return that pure gold can’t offer.
3. Government guarantee removes worries about storage, loss, and authenticity.

It’s like having real-life gold but without the hassle!

3. Subscriptions & Government Rollout

SGBs launched in 2015 and were a key part of the government’s attempt to reduce gold imports by offering a digital alternative. They were released in multiple tranches, each open for 5 days, allowing buyers time to subscribe at fixed rates based on the week’s average gold price.

Each tranche allowed:

• Minimum: 1 gram;
• Maximum: 4 kg for individuals/HUFs and 20 kg for trusts per financial year.

However, the scheme faced criticism in 2024 due to high government costs, and no new tranches have been issued since February 2024. The 2025 Union Budget confirmed the scheme’s discontinuation.

4. Understanding the Returns

Take SGB 2017‑18 Series II, due to mature on July 28, 2025; it delivered a 250% return at maturity. That’s gold performance plus interest, all backed by the government.

Earlier tranches, like 2020‑21 Series IV, offered a 99.67% return on premature redemption in July 2025.

These numbers are not hypothetical; they are real gains enjoyed by investors. If you invested ₹5,000 and it matured today, you could expect nearly ₹12,500 in return without touching physical gold.

5. Are RBI Gold Bonds Taxable?

Now, the heart of your question.

a) Interest Income

The 2.5% annual payment is fully taxable as ‘Income from Other Sources’, and needs to be declared as per your tax slab. There’s no TDS deducted, so self-reporting is essential.

b) Capital Gains at Maturity (8 years)

If you hold and redeem your SGB at maturity, the capital gains are completely tax-free for individual investors. That’s a rare and lucrative advantage.

c) Premature Redemption After 5 Years

Allowed only during interest payout dates, premiums for these redemptions were high, like the 99.67% return in July 2025and still qualify for capital gains exemption.

d) Secondary Market Sale (Demat)

When you sell Sovereign Gold Bonds before maturity is, by trading them on the tax you owe depends on how long you held them:

Held for Less Than 3 Years → Short‑Term Capital Gains (STCG)

If you sell your SGBs within three years of purchasing them, the profit is categorized as Short-Term Capital Gains.

• Tax Rate: The gains are added to your total income and taxed according to your income tax slab.
• Example: If you’re in the 30% income slab and you make a profit of ₹10,000, you’ll pay ₹3,000 in tax.

This is the least tax-friendly scenario if you need liquidity quickly; it’s still manageable.

Held for More Than 3 Years → Long‑Term Capital Gains (LTCG)

If you keep the bonds for over three years and then sell, it’s treated as Long-Term Capital Gains.

• Tax Rate: It’s taxed at 20%, but here’s the bonus: you can apply indexation.
• Indexation Benefit: This adjusts the purchase price for inflation, reducing the taxed amount.
• Bottom Line: Your actual tax burden goes down as inflation is accounted for.

This makes it a much more tax-efficient option if you’re willing to wait.

Why This Matters

This structure aligns with how most long-term financial instruments are taxed in India, but SGBs offer an even more compelling case because if they’re held until maturity (8 years), capital gains are completely exempt for individuals.
In other words, the longer you stay invested, the less tax you pay and the more you retain of your gains

If you sell before maturity via the exchange:

• Held <3 years: Short-Term Capital Gains taxed as per slab rate.
• Held >3 years: Long-Term Capital Gains at 20% with indexation. 

Real-Life Example for Clarity

You bought 10 grams worth of SGBs in 2017 for ₹3,000/gram. In 2025, redemption gives ₹105,000/gram.

• Principal: ₹30,000
• Repayment: ₹105,000
• Capital gain: ₹ 75,000 is completely tax-free at maturity.

You still pay tax only on interest earned across the years, which is significantly smaller.

6. Why SGBs Shine Even as a Forgotten Scheme

• Nearly 147 tonnes worth ₹72,275 crore were raised across 67 tranches till March 2025. They were impactful before discontinuation.
• Compared to jewellery or gold ETFs, they offered greater safety and better tax handling.

Final Takeaway: Are RBI Gold Bonds Taxable?

• Interest: Taxable and self-declared.
• Capital Gains at Maturity or Premature Redemption: Fully tax-exempt for individuals of the most rewarding gold investments India has known.

If you had asked us five years ago, this was one of the few times the government literally gave gold, and the taxman respectfully stayed out.

Author Details- Apoorva Lamba (3rd Year Student, Madhav Mahavidyalya, Jiwaji University, Gwalior)