SGB Tax Changes 2026: The End of Tax-Free Gold Investing?
If you own Sovereign Gold Bonds (SGBs) or are considering buying them, Budget 2026 has fundamentally changed the tax landscape. What was once India's most tax-efficient gold investment now comes with significant caveats. Here's everything you need to know.
Key Change: From April 1, 2026, only original RBI subscribers holding until full 8-year maturity get tax-free gains. Everyone else pays 12.5% LTCG tax.
What is a Sovereign Gold Bond?
Launched in November 2015, Sovereign Gold Bonds were designed to reduce India's physical gold imports while giving investors a government-backed way to invest in gold. Key features:
- Tenure: 8 years (with early exit option from year 5)
- Interest: 2.5% per annum on initial investment
- Returns: Linked to gold price appreciation
- Issuer: Reserve Bank of India on behalf of Government
SGBs became incredibly popular because they offered gold returns plus interest plus tax-free capital gains at maturity. But that last benefit? It's now restricted.
Timeline of SGB Tax Changes
Old vs New Tax Rules: Complete Comparison
| Scenario | Before April 1, 2026 | After April 1, 2026 |
|---|---|---|
| Original subscriber → Hold to maturity | Tax-free | Tax-free |
| Secondary market buyer → Hold to maturity | Tax-free | 12.5% LTCG |
| Original subscriber → 5-year early redemption | Tax-free | 12.5% LTCG |
| Sale via stock exchange (>12 months) | 12.5% LTCG | 12.5% LTCG |
| Sale via stock exchange (≤12 months) | Slab rate (STCG) | Slab rate (STCG) |
| Interest income (2.5% p.a.) | Slab rate | Slab rate (unchanged) |
Who Is Affected?
1. Secondary Market Buyers (Most Impacted)
If you bought SGBs from NSE/BSE instead of directly from RBI, you've lost the tax exemption entirely. Even if you hold until the bond's maturity date, you'll pay 12.5% LTCG tax on your gains.
Example: You bought SGB on NSE at Rs 5,000/unit in 2022. At maturity in 2030, gold price is Rs 10,000/unit.
• Gain: Rs 5,000 per unit
• Tax (12.5%): Rs 625 per unit
• Previously this would have been: Rs 0
2. Original Subscribers Using Early Exit
RBI allows original subscribers to redeem SGBs after 5 years through designated windows. Before April 1, 2026, this was tax-free. After that date, even this early redemption attracts 12.5% LTCG tax.
Action Required: If you're eligible for the 5-year redemption window before April 1, 2026, and don't plan to hold the full 8 years, consider redeeming now to lock in tax-free status.
3. Original Subscribers Holding to Maturity (Unaffected)
If you subscribed directly from RBI during issuance and hold continuously until the full 8-year maturity, you're still completely tax-free. This is the only scenario that remains unchanged.
Why Did the Government Make These Changes?
The SGB scheme became a victim of its own success:
- Gold prices tripled: From Rs 26,300/10g (2015) to Rs 84,000+/10g (2025), creating massive government liability
- High cost of borrowing: Government pays 2.5% interest plus gold price appreciation, far exceeding traditional bond costs
- Arbitrage opportunities: Traders were buying SGBs on secondary market at discounts and enjoying tax-free maturity
- Scheme discontinued: No new SGBs have been issued since February 2024
The changes align the tax benefit with the original policy intent: rewarding genuine long-term investors who subscribe at issuance, not traders exploiting secondary market discounts.
What Should You Do Now?
If You're an Original Subscriber:
- Planning to hold till maturity? No action needed. You remain tax-free.
- Eligible for 5-year redemption before April 1, 2026? Consider redeeming now if you weren't planning to hold all 8 years anyway.
- Eligible for 5-year redemption after April 1, 2026? You'll face 12.5% LTCG tax on early exit. Evaluate if holding to maturity makes more sense.
If You Bought from Secondary Market:
- Accept the new reality: You'll pay 12.5% LTCG regardless of when you sell or redeem
- Factor tax into returns: A 100% gain becomes ~87.5% post-tax
- Compare alternatives: Gold ETFs and Gold Funds now have similar tax treatment
If You're Considering Buying SGBs:
- New issuances stopped: Government is not issuing new SGBs
- Secondary market only: You can only buy from NSE/BSE now, which means no tax exemption
- Consider alternatives: Gold ETFs offer similar exposure with better liquidity
SGB vs Gold ETF: Tax Comparison (Post Budget 2026)
| Factor | SGB (Secondary Market) | Gold ETF |
|---|---|---|
| LTCG Tax (>12 months) | 12.5% | 12.5% |
| STCG Tax (≤12 months) | Slab rate | Slab rate |
| Indexation | Not available | Not available |
| Interest Income | 2.5% p.a. (taxable) | None |
| Liquidity | Limited (traded on exchange) | High (traded on exchange) |
| Expense Ratio | None | 0.5-1% p.a. |
The 2.5% interest on SGBs still gives them a slight edge over Gold ETFs, but the gap has narrowed significantly now that tax treatment is similar.
Key Takeaways
- April 1, 2026 is the cutoff date for the new rules
- Only original RBI subscribers holding to full maturity remain tax-free
- Secondary market buyers now pay 12.5% LTCG at maturity
- 5-year early redemption becomes taxable after April 1, 2026
- Interest (2.5%) remains taxable at slab rate (unchanged)
- No new SGBs are being issued - scheme discontinued
- Consider early redemption if eligible before April 1, 2026
Calculate Your Tax Liability
Use our income tax calculator to see how capital gains from SGBs will impact your overall tax liability.
Try Tax CalculatorDisclaimer: This article is for informational purposes only. Tax laws are complex and subject to interpretation. Please consult a qualified tax professional for advice specific to your situation.