SOVEREIGN GOLD BONDS

  • May 21, 2021
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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SOVEREIGN GOLD BONDS

Subject: Economy

Context: Recently, the Reserve Bank of India (RBI) has announced a plan to sell sovereign gold bonds (SGBs) in six phases.

Concept:

Sovereign Gold Bond Scheme

  • It is to be issued by Reserve Bank of India on behalf of the Government of India.
  • The Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
  • The tenor of the Bond will be for a period of 8 years with exit option after 5th year to be exercised on the next interest payment dates.
  • The Gold Bonds will be issued as Government of India Stock under GS Act, 2006.
  • The investors will be compensated at a fixed rate of 2.50 percent per annum payable semi-annually on the nominal value.

Significance of SGB’s

  • The investors gain from appreciation in gold prices as redemption of bonds will be based on the then prevailing prices.
  • If gold prices treble after eight years, the investor will get the higher prices plus the 2.5% interest.
  • The investor does not lose in terms of the units of gold which he has paid for if gold prices fall.
  • On maturity, the gold bonds will be redeemed in Indian rupees and the redemption price will be based on a simple average of closing price of gold of 999 purity of the previous 3 business days from the date of repayment.
  • Although the tenure of the bond is 8 years, early encashment/redemption of the bond is allowed after the fifth year, on coupon payment dates.
  • The bond will be tradable on exchanges, if held indemat form and it can also be transferred to any other eligible investor.
  • They can be used as collateral for loans from banks, financial Institutions and non-banking financial companies (NBFC).

Tax implications of Sovereign Gold Bond

  • The interest on the bonds will be taxable as per the provisions of the Income-Tax Act, 1961 (43 of 1961).
  • The capital gains tax arising on redemption of SGB to an individual has been exempted.
  • The indexation benefits will be provided to long-term capital gains arising to any person on transfer of bonds.
  • TDS is not applicable on the bonds, but it is the responsibility of the holder to comply with tax laws.
economy SOVEREIGN GOLD BONDS