Investors holding Sovereign Gold Bonds (SGBs) should also ensure that income from these investments is reported correctly.
The tax treatment of SGBs depends on the nature of the income, whether it is interest income or capital gains, and whether the bonds are redeemed at maturity or sold before maturity.
Taxpayers should note that the changes announced in Budget 2026 will apply only from AY 2027-28. For the current filing season, the existing tax rules continue to apply.
Reporting SGB income in ITR
SGB-related income must be reported under the appropriate schedules in ITR-2, ITR-3 or ITR-4, depending on the taxpayer’s circumstances.
The annual interest earned on SGBs at 2.5% is fully taxable and should be reported under Schedule OS (Income from Other Sources). It is taxed according to the investor’s applicable income tax slab.
Since interest on government securities is exempt from Tax Deducted at Source (TDS) under Section 193 of the Income Tax Act, no TDS is deducted on SGB interest.
The tax treatment of capital gains depends on how the bonds are disposed of. If the original subscriber redeems the bonds with the Reserve Bank of India (RBI) at maturity, the capital gains remain exempt under the rules applicable for AY 2026-27. Eligible taxpayers may disclose such exempt gains under Schedule EI (Exempt Income), where applicable.
Budget 2026 changes to apply from AY 2027-28
Budget 2026 has restricted the capital gains tax exemption on SGB redemption to original subscribers, investors who purchased the bonds during the RBI’s primary issuance and hold them until maturity.
Investors who acquire SGBs from the secondary market will no longer qualify for this exemption. Any gains arising on redemption will be taxable and should be reported under Schedule CG (Capital Gains).
However, these changes will come into effect only from AY 2027-28, when the relevant provisions of the Income Tax Act, 2025, take effect.
Reporting SGB interest and capital gains under the correct schedules can help taxpayers file accurate returns and reduce the likelihood of receiving tax notices due to reporting errors.
