Bombay:
The early redemption price of state gold bonds (SGB) to be paid on Tuesday is set at Rs 5,115 per unit, an RBI release said.
Early redemption of gold bonds is permitted after the fifth year from the issue date and the maturity date of SGB 2016-17, Series III issued on November 17, 2016 is May 17, 2022.
SGB’s redemption price is based on the average closing price of 999 purity gold for the week (Monday-Friday) prior to the redemption date, as published by the India Bullion and Jewelers Association Ltd (IBJA).
Accordingly, the redemption price for the second prepayment due on May 17, 2022 will be Rs 5,115 per unit of SGB based on the simple average of the closing price of gold for the week of May 9-13, 2022,” the RBI said. in a statement.
The issue price of the 2016-17 Sovereign Gold Bond Scheme, Series III was Rs 2,957 per gram of gold.
The par value of the bond was determined based on the average closing price for gold with a purity of 999 (October 17-21, 2016), published by the IBJA at Rs 3,007 per gram.
The government, in consultation with the RBI, had offered a discount of Rs 50 per gram to the face value of the government gold bond.
The RBI issues the bonds on behalf of the Government of India which are sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices and NSE and BSE.
In terms of taxes, Deepak Jain, Chief Executive, TaxManager.in, a tax registration and compliance management portal, said the interest earned from SGB will be taxable as income from other sources, while TDS will not apply to the bond.
He said the rules on capital gains tax on redemption of SGB are very clear that after the 8-year lock-in period – the entire gains are exempt or tax free.
However, if the SGB is redeemed after the 5-year lock-in period and before the 8-year maturity period, the gains accrued on redemption will be long-term capital gains and it will be taxed at 20 percent with indexation benefit, Jain said.
If the indexation benefit is not opted for, the rate of 10 percent applies.
Col Sanjeev Govila (ret.), who runs a Sebi-registered financial consulting firm, Hum Fauji Initiative, believed SGBs are primarily bought to buy gold as a long-term asset allocation strategy that, in addition to capital appreciation, also generates a 2.5 percent interest per year.
According to him, SGB 2016-17 Series III bonds have delivered “very good returns” of about 13.5 percent year on year, including interest earned.
“With the current uncertainty about the stickiness of inflation and the outlook for GDP growth, it would be good to hold onto these SGBs,” he added.
The scheme was launched in November 2015 with the aim of reducing demand for physical gold and converting some of the domestic savings used to purchase the yellow metal into financial savings.
The bonds are expressed in multiples of gram(s) of gold with a base unit of 1 gram. The term of the bond is 8 years with an option to exit after the 5th year to be exercised on the following interest payment dates.
The minimum allowed investment is 1 gram of gold. The maximum subscription limit is 4 kg for individuals and HUFs and 20 kg for trusts and similar entities per fiscal year. Know-your-customer (KYC) standards are the same as those for purchasing physical gold.