SGB redemption will no longer be tax free for these investors as budget 2026 introduces new taxation rules for FY 2027

Union Budget proposed to provide that the exemption from capital gains tax in respect of Sovereign Gold Bonds shall be available only where such bonds are subscribed to by an individual at the time of original issue and are held continuously until redemption on maturity.

It is also proposed to provide that this exemption applies uniformly to all issuances of Sovereign Gold Bonds by the Reserve Bank of India.

The capital gains arising from redemption of Sovereign Gold Bonds issued by the Reserve Bank of India are exempt under the provisions of section 70(1)(x) of the Income-tax Act, 2025.


Also read: Budget 2026 Income Tax Highlights: Changes in taxation on SGB redemption, share buyback, TCS, STT, NRI property TDS, updated income tax slabs, standard deduction and more

Neeraj Agarwala, Partner, Nangia & Co LLP comments that

As per the proposals in the Finance Bill, 2026, the tax exemption on redemption of Sovereign Gold Bonds (SGBs) at maturity will continue to be available only in cases where the bonds are subscribed at the time of initial issuance by the Government.

SGB tax rules impact secondary market investors

"This change primarily impacts investors who purchase SGBs from the secondary market, including individuals who buy these bonds for liquidity or price arbitrage rather than subscribing at the original issuance stage. As these investors are not the original subscribers to the bonds, the difference between the acquisition price and the redemption value will now be taxable in their hands at the time of maturity", says Agarwala.

According to the Taxmann, This significantly narrows the scope of the exemption and changes the tax outcome for secondary market investors and cases of premature redemption. Capital gains arising in such cases will now be taxable.

The taxability of Sovereign Gold Bonds redeemed on or after 01-04-2026 shall be as follows:

Conditions	Taxability
Purchased at the time of original issue and held continuously till maturity	Exempt
Not purchased at the time of original issue but held till maturity	Taxable
Purchased at the time of original issue but not held till maturity	Taxable
Neither purchased at the time of original issue nor held till maturity	Taxable

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The Sovereign Gold Bonds (SGBs) amendment has completely altered the tax landscape of SGBs by restricting tax-free maturity benefits only to original investors who hold till maturity.

All secondary market investors will now be taxed on their gains as capital gains. Long Term Capital Gain to be taxed at 12.50% and Short Term at Slab rate, followed by applicable surcharge & cess. Over the years, SGBs had increasingly become trading instruments, resulting in significant revenue leakage for the government, which this amendment now seeks to plug , says CA Avinash Kumar Rao, Partner at Mohindra & Associates.

However, the government should consider that the retrospective tax changes do not merely impact returns, they damage investor confidence as well. Tax policy must be stable and predictable, because uncertainty ultimately taxes trust more than income, he adds.

Also read: Stock buyback will be considered as capital gains with effective rates of 22% and 30%, announces FM in Budget 2026

FAQs-Budget 2026

Does the exemption apply uniformly to all series of Sovereign Gold Bonds issued by the Reserve Bank of India?

Ans: Yes. The amended provision applies uniformly to all Sovereign Gold Bonds issued by the Reserve Bank of India from time to time, irrespective of the series in which the bonds were issued, subject to fulfilment of the specified conditions.

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.

Q.6 From which date shall the amended provisions apply?

Ans: The amendment shall take effect from the 1st day of April, 2026 and shall apply in relation to the tax year 2026-27 and subsequent tax years.