Kolkata: Reserve Bank of India (RBI) has set premature redemption price for another tranche of the SGB (Sovereign Gold Bond) Scheme, Series I of 2020-21. The price has been fixed at Rs 9,600 per unit, which is scheduled for Monday, April 28, 2025. The guidelines state that investors can exit early from SGBs if they have completed five years from the date of issuance. SGB of Series I of 2020-21 were issued on April 28, 2020 and therefore, the five-year period ends on April 28.
Significantly, earlier in the week beginning April 21, RBI announced premature redemption prices for two other series of SGB. These were those of Series IV issued in 2017-18 and Series II issue in 2018-19. It can be recalled that the Centre introduced the SGB Scheme in 2015-16. One of the major objectives of the government was to curb the demand for physical gold by encouraging investment into gold bonds. Gold ETFs, by the way, are also a way of curbing the demand for physical gold. Both can shift the demand for gold bars and coins that are needed for investment.
How is redemption price calculated
For SGBs, there is simple formula to fix the redemption price. It is the arithmetic average of the closing price of gold of 999 purity — 24 carat in popular terms — in the preceding three trading days. These rates are according to the data of India Bullion and Jewellers Association. According to this principle, the price of rs 9.600/gm was arrived at by calculating the closing prices of Gold 999 on April 23, 24, and 25.
SGBs attracted a lot of investments, particularly due to the safe nature of the instrument and the fact that the government was paying interest of 2.5% annually on the initial investment. Another factor was that the price of gold was continuously rising. Also it was declared that if the sovereign gold bonds were held till maturity (eight years), the gains would be exempt from capital gains.
Tax implications
Investors should remember that interest income on SGBs is treated as ‘Income from Other Sources’ according to the Income Tax Act 1961. It will be applicable at the income tax slab rate of the individual. According to the rules, if an investor chooses to go for premature redemption (through the designated RBI window), the gains are exempt from LTCG (Long Term Capital Gains tax). But should an investor sell the bonds in the secondary market instead of using the RBI redemption route, capital gains tax will be slapped on the gains. In that case, health and education cess will also be applicable.
The Centre has decided to discontinue the SGBs. The redemption price is determined on the simple average of closing price of 24 carat gold in the three preceding trading days as quoted by India Bullion and Jewellers Association (IBJA). Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
