The Budget 2026 brought a huge setback for the Sovereign Gold Bond (SGB) investors.

Before Budget 2026, all redemptions of SGBs with RBI (premature redemption or maturity) were not considered transfer and hence the gains were not taxable.

Now, that has changed. The Budget 2026 proposes to limit this tax exemption only for those bonds bought at the time of primary issuance and held continuously for 8 years until maturity.

In this post, let us see how this change affects you and if there is anything you can do to save on capital gains taxes from these bonds.

What are changed for Sovereign Gold Bonds?

Before Budget 2026, any gains from the “redemption” of Sovereign gold bonds were exempt from tax. You can redeem bonds with RBI in 2 ways.

• At the time of bond maturity (8 years). OR
• During pre-mature redemption windows. Pre-mature redemption window was available to investors from the end of the 5^th year (since the bond issuance) at six-month intervals. At the time of coupon (interest) payment.

This was irrespective of how you purchased the bond. At the time of primary issuance (when the RBI first issued the gold bond). Or in the secondary market.

Now, the rule has been modified.

Going forward, the capital gains will be exempt from tax only if:

• You bought the gold bond at the time of primary issuance. AND
• Held the bond for 8 years (until maturity). Redeeming with the RBI during premature withdrawal window will not help.

Both the conditions must be met for gains to be exempt from tax.

Capital gains will be taxable if

• You bought the gold bonds in the secondary market. This is irrespective of whether you sell in the secondary market, redeem during premature withdrawal window or hold until maturity.
• You sold the gold bonds in the secondary market, irrespective of whether you bought during primary issuance or from the secondary market. This was always taxable.
• You bought during primary issuance and redeemed during premature withdrawal window.

Primary issuance means “directly from RBI”. You bought when RBI initially issued the bond. You applied as you do for an IPO.

Secondary market means “buying on exchanges through your broker”. You must have placed a buy bid just like you do when you buy stocks.

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Can I do something before April 1, 2026, to avoid paying taxes?

#1 If you bought SGBs during primary issuance, you do not have to worry. You can avoid paying taxes by simply holding the bonds until maturity.

#2 Selling your SGBs on the secondary market before April 1, 2026, won’t help save taxes. Because sales in the secondary markets are taxable even now. At your marginal tax rate for holding period < 1 year. At 12.5% for holding period > 1 year.

Yes, if your SGB is trading at a sharp premium, you can benefit from price deviation by selling in the secondary market. But you will not get any tax benefit and capital gains will be taxed.

#3 Buying SGBs in the secondary market won’t help either. Why? Because if you buy SGB in the secondary market, you have no way out. Your gains on maturity, redemption during premature withdrawal window, or secondary market sales will be taxed as capital gains.

#4 As I see, the only SGBs (that were bought in the secondary market) that are still exempt from capital gains are those:

• Are maturing before April 1, 2026, OR
• That have premature withdrawal window available before April 1, 2026, and you redeem those bonds with RBI during this window before April 1, 2026

 


*The Section 47 of the Income Tax Act, 1961 and Section 70 of the Income Tax Act, 2025 make no distinction between premature redemption and redemption on maturity. OR how the gold bonds were purchased (primary issuance or secondary market). Hence, any redemption with RBI should be exempt from taxes. The amendment to Section 70 (brought in Budget 2026) removes the tax-exemption for premature withdrawals or for secondary market purchases. However, this amended clause comes into effect from April 1, 2026. Therefore, any premature withdrawal made before April 1, 2026, should be exempt from taxes too, even if you bought in the secondary market.

However, there is spanner in the works. In the FAQs on Budget 2026 issued by the Income Tax department, I found the following on Page no. 54 of this FAQ document.

Q.4 Will the exemption under section 70(1)(x) of the Income-tax Act, 2025 apply to Sovereign Gold Bonds acquired through secondary market transactions?

Ans: No, the exemption shall not apply to Sovereign Gold Bonds acquired through transfer or purchase in the secondary market. The exemption is restricted to bonds subscribed to by an individual at the time of original issue. This was also clarified by the Department of Economic Affairs in its OM dated 06.12.2022.

Q.5 Will this exemption be available in cases of premature redemption of Sovereign Gold Bonds?

Ans: No, the exemption shall apply only where the Sovereign Gold Bond is held continuously until redemption on maturity. Premature redemption, even after completion of the prescribed lock-in period, shall not be eligible for exemption.

With this response, it seems that the Income Tax Department gave this clarification (that secondary market purchases are not exempt from tax) over 3 years ago. I could not find the aforementioned memo online. In any case, my understanding is that an internal memo of the Department of Economic Affairs cannot override an act passed by the Parliament of India.

Note: This is a complex tax issue. I am not a tax expert. Please consult your tax advisor before acting.

Which SGBs have premature redemption windows before April 1, 2026?

If you go by my assessment that premature redemption (for secondary market purchases) is still exempt before April 1, 2026, the next question is which are those SGBs that have premature redemption window before April 1, 2026.

For such SGBs, you can exercise the option of premature redemption and avoid paying taxes (even if you bought in the secondary market).

Only 4 SGBs have such windows available. Information source: NSDL

Hence, if you have bought any of the above 4 bonds from the secondary market, this could be your chance to avoid paying taxes on gains from these bonds.

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You can use capital losses to set off capital gains

If you have capital losses from sale of any asset, then you can use such capital loss to set off capital gains from sale/redemption of Sovereign gold bonds.

This article was originally published in Personal Finance Plan.

Author: Deepesh Raghaw, SEBI Registered Investment Advisor and Founder of PersonalFinancePlan.in