Sovereign gold bonds (SGBs), long seen as an efficient way to hold gold, just faced a major tax change in the Union Budget 2026. From April 1, 2026, capital gains on SGBs will depend on whether you bought the bond at original issue or on the secondary market, which especially impacts investors who accumulated SGBs via stock exchanges.
For many long-term gold investors, this announcement represents a wake-up call. The bond itself remains unchanged, but the tax treatment, which was once a hallmark of SGBs, is now tied explicitly to how and when the bond was acquired.
Old tax rules for Sovereign Gold Bonds
Sovereign Gold Bonds are government-backed securities that let you invest in gold without holding physical metal. Issued by the Reserve Bank of India (RBI) on behalf of the government, their value moves with gold prices.
SGBs have an 8-year maturity, with an option to exit early after 5 years through RBI’s buyback window. Investors also earn a fixed annual interest of 2.5%, which is taxed as “Income from Other Sources” as per investor’s income tax slab.
Investors could purchase Sovereign Gold Bonds in two ways: (i) directly from the Reserve Bank of India (RBI) during issuance, and (ii) through the secondary market on stock exchanges, such as National Stock Exchange (NSE) or Bombay Stock Exchange (BSE).
Before the changes announced in Union Budget 2026, capital gains on Sovereign Gold Bonds redeemed at maturity were entirely tax‑free for all investors, whether they bought the bonds at RBI issuance or later on the secondary market. This uniform tax treatment made SGBs especially attractive to long-term, high-tax bracket investors seeking gold exposure without capital gains tax.
New tax rules on Sovereign Gold Bonds (SGBs) after Budget 2026
Finance Minister Nirmala Sitharaman clarifies in her Budget speech, “It is 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.”
1. Tax-free benefit limited to original subscribers
The proposed amendment to Section 70(1)(x) of the Income Tax Act, 2025, clarifies that the capital gains tax exemption at maturity will now be available only to original subscribers; those who purchase Sovereign Gold Bonds directly from the government during RBI-issuance and hold them until maturity.
2. Capital gains tax for secondary market investors
Secondary market purchases will no longer qualify for this tax-free benefit. Therefore, the applicable capital gains tax is as follow:
On redemption,
- Short-term capital gains (STCG): If sold within 12 months of purchase, gains will be taxed at the investor’s applicable income tax rate.
- Long-term capital gains (LTCG): If you hold for more than 12 months, the gains will be taxed at 12.5% with no indexation benefits.
To simplify it further,
1. RBI-issued SGB
Imagine you bought an SGB directly from the RBI on January 1, 2025, and held it until maturity. Even if you redeemed it on March 31, 2033 (maturity after 8 years), your gains would be tax-free, as you will be the original subscriber.
2. Secondary-market SGB
Now, suppose you bought the same SGB on the secondary market on January 1, 2025. If you hold it until maturity, the gains would no longer be tax-free; they would be taxed at 12.5% as long-term capital gains from April 1, 2026, onwards.
Since no secondary-market SGBs reach maturity before April 1, 2026, this means that all gains for secondary market buyers will be subject to capital gains tax.
Why the Government changed SGB tax rules in Union Budget 2026
Eliminating arbitrage in secondary markets: Previously, the tax exemption on SGB redemption applied regardless of how the bond was acquired. Investors could purchase older SGB series on stock exchanges to take advantage of liquidity or potential price arbitrage. They still enjoy tax-free redemption, creating a loophole. This revised framework corrects this arbitrage opportunity, restricting the exemption to bonds acquired directly at issuance.
Ensuring fairness between primary and secondary subscribers: Secondary market buyers often enjoyed benefits intended exclusively for original subscribers. This change ensures that investors who buy directly from the government get the benefit, while those buying from the market don’t get a free tax advantage.
Encouraging timely participation in primary SGD issuances: By attaching tax benefits to original subscriptions, the government aims to nudge investors toward engaging with the issuance calendar. This ensures better capital allocation and aligns with the broader objective of managing public debt and liquidity efficiently.
What Union Budget 2026 rules for SGBs mean for Indian investors
For Indian investors, Budget 2026 fundamentally changes how Sovereign Gold Bonds contribute to overall returns. Buying SGBs from the secondary market is no longer a clean, tax-efficient bet to gain gold exposure. Capital gains tax will now directly reduce net returns, making discounted purchases less compelling. Investors must reassess whether the post-tax yield justifies the investment.
The impact is more pronounced for high-tax-bracket investors. What once made secondary-market SGBs attractive was the ability to accumulate gold without worrying about capital gains. That advantage is now gone. For long-term investors, the smarter move increasingly lies in subscribing directly during government issuances, where the tax benefit still holds, rather than picking up bonds later in the market.
The changes also elevate the importance of acquisition strategy. Investors who intend to hold SGBs until maturity will now derive greater value from subscribing directly during government issuances. Entry timing, holding period, and tax impact have become as important as gold price movements in determining outcomes.
Conclusion
As a result, portfolio decisions around gold require closer scrutiny. Some investors may find that alternatives, like gold ETFs, offer comparable or better after-tax returns, depending on liquidity needs and tax profiles. Going forward, evaluating SGBs on a post-tax basis, and aligning them with broader investment goals, will be critical to avoid unintended erosion of returns.
In this context, guidance from a qualified financial advisor becomes increasingly important. An advisor can assess whether secondary-market SGBs still make sense on a post-tax basis, and align allocation decisions with the investor’s broader tax and liquidity profile. As tax outcomes now materially affect returns, uninformed or rule-of-thumb investing in secondary-market SGBs carries a higher risk of suboptimal outcomes.
Strategic planning, careful evaluation of purchase price versus expected return, and awareness of alternative gold investments will now determine the true value of buying SGBs from the secondary market.
