Sovereign Gold Bond Scheme 2019-20 – Eligibility, Interest, Taxation

Sovereign Gold Bond 2019-20 – Government Announces Gold Bond Scheme: Resident entities like individuals, trusts, universities and charitable institutions are eligible to purchase gold bonds. The Government of India will be launching the Sovereign Gold Bonds Scheme soon. As investors will get returns that are linked to gold price, the scheme is expected to offer the same benefits as physical gold. They can be used as collateral for loans and can be sold or traded on stock exchanges.

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India.

The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.

Sovereign Gold Bond Scheme 2019-20

Here are 10 things you need to know about the gold bond scheme (Sovereign Gold Bonds 2019-20):

1. Who issues gold bonds? The sovereign gold bonds are issued by the Reserve Bank of India on behalf of government.

S.No.TrancheDate of SubscriptionDate of Issuance
12019-20 Series IJune 03-07, 2019June 11, 2019
22019-20 Series IIJuly 08-12, 2019July 16, 2019
32019-20 Series IIIAugust 05-09, 2019August 14, 2019
42019-20 Series IVSeptember 09-13, 2019September 17, 2019

2. Where can one buy gold bond? Retail investors can buy gold bonds through banks, designated post offices, the Stock Holding Corporation of India, and stock exchanges NSE and BSE.

3. Who is eligible to buy SGB? Resident entities such as individuals, HUFs (Hindu Undivided Families), trusts, universities and charitable institutions are eligible to purchase gold bonds.

4. Minimum investment: The sovereign gold bond is denominated in multiples of one gram of gold, which is the minimum permissible investment limit.

5. Maximum investment: A subscriber is allowed a maximum limit of 4 kilograms in case of individuals and HUFs in a financial year. The upper limit of investment in case of trusts and similar entities per fiscal year is 20 kilograms. The annual ceiling includes bonds subscribed under different tranches in the initial issuance and those purchased from the secondary market, according to the release.

6. Maturity period: Gold bonds comes with a maturity period of eight years. The investor gets an opportunity to exit the bond in the fifth, sixth and seventh year on the interest payment dates, according to the statement.

7. Gold bond issue price: The price will be fixed on the basis of an average of closing gold prices (99.9 per cent purity) published by industry body IBJA (India Bullion and Jewellers Association) for the last three working days of the week preceding the subscription period. The issue price will be Rs. 50 per gram less for online subscribers making payment through a digital mode.

8. Interest rate: SGBs fetch interest at the rate of 2.5 per cent, payable semi-annually.

9. Income tax benefit: The interest on SGB investment is taxable under the Income Tax Act, 1961 (43 of 1961). However, any capital gains tax arising on redemption of the SGB to an individual has been exempted.

10. Documents required: The finance ministry said the KYC (know your customer) norms applicable to purchase physical gold will apply to gold bonds. “KYC documents such as voter ID, Aadhaar card/PAN or TAN /Passport will be required. Every application must be accompanied by the ‘PAN Number’ issued by the Income Tax Department to the investor(s),” the statement added.

Issue Price

The nominal value of the Bonds shall be fixed in Indian Rupees fixed on the basis of simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited for the last 3 working days of the week preceding the subscription period. The issue price of the Gold Bonds will be ₹ 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.

Can I apply online?

Yes. A customer can apply online through the website of the listed scheduled commercial banks. Sovereign Gold Bonds will be issued on payment of rupees and denominated in grams of gold. Minimum investment in the bond shall be 1 grams. The bonds can be bought by Indian residents or entities and is capped at 500 grams.

Payment Options

Payment shall be accepted in Indian Rupees through cash up to a maximum of ₹ 20,000/- or Demand Drafts or Cheque or Electronic banking. Where payment is made through cheque or demand draft, the same shall be drawn in favour of the Receiving Office.

Tax Treatment

Interest on the Bonds shall be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long term capital gains arising to any person on transfer of bond.

Operational guidelines relating to Sovereign Gold Bonds are issued vide circular IDMD.CDD.No.3391/14.04.050/2018-19 dated May 30, 2019.

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