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Sovereign Gold Bond Scheme: All Details

Madhavi Gaur October 03, 2023 01:56 6124 0

Explore the intricacies of the Sovereign Gold Bond Scheme, launched by the Indian government. Check out details about issuance, eligibility, features, and unique benefits and more in this article.

Sovereign Gold Bond Scheme: All Details

Sovereign Gold Bond Scheme

Sovereign Gold Bond Scheme: The Government of India, in collaboration with the Reserve Bank of India, has recently decided to release Sovereign Gold Bonds (SGBs) in tranches for the fiscal year 2023-24. The initial SGB scheme was introduced by the government in November 2015 under the Gold Monetisation Scheme, with the aim of reducing the demand for physical gold and diverting a portion of domestic savings, traditionally used for gold purchases, into financial savings.

Sovereign Gold Bond Scheme Key Details  

Sovereign Gold Bond Scheme: The Government of India, in collaboration with the Reserve Bank of India, will release Sovereign Gold Bonds (SGBs) in tranches for the fiscal year 2022-23.

Investment in SGBs surged significantly during the Covid-impacted years as investors sought safer options amid volatility in equity markets. The years 2020-21 and 2021-22 accounted for nearly 75% of total sales of the bonds since the scheme’s inception in November 2015.

Item Details
Issuance Issued by the Reserve Bank of India on behalf of the Government of India.
Eligibility SGBs will be restricted for sale to resident individuals, HUFs (Hindu Undivided Family), Trusts, Universities, and Charitable Institutions.
Tenor The tenor of the SGB will be eight years with an option of premature redemption after the 5th year.
Minimum size Minimum permissible investment will be One gram of gold.
Maximum limit The maximum limit of subscription: 4 Kg for individuals, 4 Kg for HUF, and 20 Kg for trusts and similar entities per fiscal year (April-March).
Joint holder In joint holding, the investment limit of 4 Kg will be applied to the first applicant only.
Issue price The price of SGB will be fixed in Indian Rupees based on the simple average of the closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited.
Sales channel SGBs will be sold through Scheduled Commercial banks (excluding Small Finance Banks, Payment Banks, and Regional Rural Banks), Stock Holding Corporation of India Limited, Clearing Corporation of India Limited, designated post offices, National Stock Exchange of India Limited, and Bombay Stock Exchange Limited, either directly or through agents.
Interest rate Investors will be compensated at a fixed rate of 2.50% per annum, payable semi-annually on the nominal value.
Collateral SGBs can be used as collateral for loans.
Tax treatment The interest on SGBs shall be taxable as per the provisions of the Income Tax Act, 1961. Capital gains tax arising on redemption of SGB to an individual is exempted.
Tradability SGBs shall be eligible for trading.
SLR eligibility SGBs obtained by banks through the pledge process will be considered as part of their Statutory Liquidity Ratio requirements.

Sovereign Gold Bond Scheme Launch And Eligibility

Launch: The SGB scheme was initiated in November 2015 to reduce the demand for physical gold and channel a portion of domestic savings, traditionally used for gold purchases, into financial savings.

Issuance: Gold Bonds are issued as Government of India Stock under the Government Securities (GS) Act, 2006. The Reserve Bank of India (RBI) issues these bonds on behalf of the Government of India. They are sold through Commercial banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognized stock exchanges such as the National Stock Exchange of India Limited and Bombay Stock Exchange, either directly or through agents.

Eligibility: The bonds are restricted for sale to resident individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions.

Sovereign Gold Bond Scheme Features

  • Issue Price: Gold bond prices are linked to the price of gold of 999 purity (24 carats) published by the India Bullion and Jewellers Association (IBJA), Mumbai.
  • Investment Limit: Gold bonds can be purchased in multiples of one unit, up to certain thresholds for different investors. The upper limit for retail (individual) investors and HUFs is 4 kilograms (4,000 units) each per financial year. For trusts and similar entities, an upper limit of 20 kilograms per financial year is applicable. The minimum permissible investment is 1 gram of gold.
  • Term: The gold bonds have a maturity period of eight years, with an option to exit the investment after the first five years.
  • Interest Rate: A fixed rate of 2.5% per annum is applicable on the scheme, payable semi-annually. The interest on Gold Bonds shall be taxable as per the provisions of the Income Tax Act, 1961.
  • Benefit: Bonds can be used as collateral for loans. The capital gains tax arising on redemption of SGB to an individual has been exempted.

Disadvantages of Investing in SGB

  • This is a long-term investment unlike physical gold, which can be sold immediately.
  • Sovereign gold bonds are listed on exchanges, but the trading volumes are not high, making it difficult to exit before maturity.

What is India Bullion and Jewellers Association Ltd. (IBJA)?

  • IBJA was established in 1919 as an association for bullion traders in India.
  • It is considered the apex association for all bullion and jewellery associations in India.
  • IBJA publishes daily Gold AM and PM Rates, which serve as benchmark rates for issuing Sovereign and Bonds.
  • It is involved in promoting trade through exhibitions and is setting up its own Domestic Gold Spot exchange, Bullion refinery, and gems & jewellery park.
  • IBJA assists its members in promoting and regulating bullion trade, resolving disputes, providing a neutral platform for weighing precious metals, and interacting with government departments.
  • The association owns a building in Zaveri Bazaar, Mumbai, where various business activities for the bullion and jewellery industry are conducted.

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Sovereign Gold Bond Scheme FAQs

They offer a stable interest rate of 2.5% per annum on the initial investment, paid twice a year. The bonds come with a maturity period of 8 years, and investors have the option of premature redemption after 5 years.

To boost the gems and jewellery sector in the country by facilitating access to gold as a raw material through bank loans. The objective is to gradually decrease dependence on the import of gold to fulfill domestic demand.

Certainly, the capital gains derived from your investment in SGBs will be exempt from taxation if you hold them for the entire 8-year tenure. Additionally, there is no deduction of TDS or imposition of GST on the purchase or redemption of Sovereign Gold Bonds.

Upon the completion of 8 years, the Sovereign Gold Bonds (SGBs) reach maturity, and both the accrued interest and redemption proceeds will be deposited into the designated bank account.

The Sovereign Gold Bond Scheme was initiated by the government in November 2015, as part of the Gold Monetisation Scheme. The scheme involves issuing bonds in tranches, and the Reserve Bank of India (RBI), in consultation with the Government of India (GOI), opens the issues for subscription. The terms and conditions of the scheme are notified by the RBI periodically.
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