Budget 2026: Tax Exemption On Sovereign Gold Bonds Only For Individual Investors

The Union Minister of Finance, Nirmala Sitharaman, proposed rationalisation of quite a few direct tax provisions in Budget 2026. The proposed rationalisations are for provisions related to share buyback, tax collection at source (TCS) rates, removal of interest deductions from dividend and mutual fund incomes, and capital gains exemption for sovereign gold bonds (SGBs), among others.

Tax Exemption Only For Individual Subscribers

Although SGBs have not been issued since February 2024, the already issued SGBs are maturing every year. Regarding the existing SGBs and their tax treatment, Sitharaman said in her Budget Speech 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.”

Another proposal in this regard is to provide this exemption uniformly to all SGBs issued by the Reserve Bank of India (RBI).

This clarifies that the capital gain tax exemption in case of all SGB issues is available only for “individual subscribers” and “only when these are not sold until maturity”.

Says Chandni Anandan, Tax expert at ClearTax: “Redemption at maturity was exempt for individuals, irrespective of whether the SGB was purchased at the time of the original issue or acquired from the secondary market. The amendment proposed in the Union Budget 2026 seeks to address this position. As per the amendment, taxpayers can claim capital gains exclusion on SGBs only if they are subscribed at the time of original issue and held continuously until maturity.”

This change is significant because redemption at maturity by individuals was always tax-free whether purchased from the original issuance or secondary market. The only change is regarding the holding period now, which makes the tax-free status conditional. For other entities, SGBs exit has always been taxable.

Sovereign Gold Bonds

Note that RBI launched the first tranche of SGB in November 2015 and the last in February 2024. In between this period, over 65 tranches were issued, which are maturing every year now.

Notably, these bonds were open for investment not only for resident individual investors and individuals on behalf of a minor, but also for Hindu Undivided Families (HUFs), Trusts, Universities, and Charitable institutions. However, according to the proposed rationalisation in Budget 2026, the tax exemption is available only for individual investors and only when they remain invested in the instrument till maturity.

How Are SGBs Taxed?

The SGBs are tax-free when kept till maturity, that is, eight years from the date of issuance. However, the instrument is not illiquid, and investors are allowed to sell it prematurely. Investors can sell the SGBs in the secondary market if they are held in a demat account. But in that case, the proceeds become taxable.

Anandan shares an example. Suppose, Mr X purchased SGB units in 2015, the capital gain tax implications are aligned with the current capital gains provisions.

Selling SGBs

As per current provisions:

·       If SGBs are sold after two years in 2017, the transaction is treated as a taxable transfer, attracting long-term capital gains (LTCG) tax at 12.5 per cent without indexation.

·       If SGBs are sold after five years in 2020, in the secondary market, the gains are taxable as LTCG at 12.5 per cent without indexation.

But selling is different than redemption. When an investor sells the SGB units back to the RBI, it is called redemption. SGBs are eligible for premature redemption only after the completion of five years.

Redemption After Five Years In 2020

·       On such redemption by an individual investor, no capital gains tax arises, because the transaction is not regarded as a transfer.

Redemption On Maturity In 2023 (After 8 Years)

·       On redemption at maturity, no capital gains tax is payable by individual investors.

“Under the proposed amendment in the upcoming budget, capital gains exclusion is available only if it is subscribed to at the original issue. Purchase of bonds during the tenure is subject to capital gains taxation with effect from 1st April, 2026, irrespective of whether it is held until maturity or sold during the tenure,” says Anandan.

Long-Term Investment

Amit Modani, Senior Fund Manager, Lead – Fixed Income, Shriram AMC, says, “Overall, this budget balances growth-oriented spending with fiscal prudence, reflecting a strategy likely to sustain investor confidence and market stability.

Says Sunil Badala, National Head of Tax, KPMG in India: “Union Budget 2026 delivers a strong, forward‑looking push for the BFSI sector, indicating the government’s commitment to financial stability, deeper capital markets, and simplified tax administration.”

Whether it is tax exemption on maintaining SGBs till maturity, or higher securities transaction tax (STT) on futures (proposed hike from 0.2 per cent to 0.5 per cent) and options (hike from 0.1 and 0.125 per cent to 0.15 per cent) reflects the government’s focus on long-term investment and not short-term gratification.