Govt to Decide Fate of Sovereign Gold Bond Scheme by September

Govt to Decide Fate of Sovereign Gold Bond Scheme by September

Sub: Eco

Sec: External Sector

Decision Timeline:

The government is likely to make a decision on the continuation of the Sovereign Gold Bond (SGB) scheme by September 2024, coinciding with the Reserve Bank of India’s (RBI) borrowing meeting.

• Purpose and Current Status:
  • The SGB scheme was introduced as an investment option rather than a social security measure.
  • It is considered one of the more expensive tools for financing the government deficit.
  • As of now, there are no alternative schemes being explored.
• Features of SGBs:
  • Nature: Government securities denominated in grams of gold.
  • Substitute for Physical Gold: Provides an alternative to holding physical gold, offering advantages such as no making charges and purity issues.
  • Holding: Can be held in RBI books or demat form, reducing risks associated with physical possession.
  • Redemption: Redeemed in Indian rupees based on the average closing price of gold of 999 purity over the previous three business days before repayment.
• Benefits:
  • Interest: Investors receive periodical interest.
  • Collateral: Can be used as collateral for loans from banks, financial institutions, and NBFCs.
  • Tax Exemption: Individuals are exempted from paying capital gains tax on redemption.
  • Trade and Transfer: Tradable upon RBI notification, and can be sold or transferred according to the Government Securities Act, 2006. Partial transfers are also possible.
• Current Returns:
  • Investors are set to receive 12% returns on Sovereign Gold Bonds maturing on August 5, 2024.

Conclusion

The Sovereign Gold Bond scheme has provided investors with a secure, tax-efficient alternative to physical gold, with added benefits like collateralization and tradability.

However, due to its cost implications for the government, its future is under review, with a decision expected by September 2024.

Sovereign Gold Bond (SGB) Scheme

• Introduction Date: October 30, 2015.
• Issued by: Reserve Bank of India (RBI) on behalf of the Government of India (GOI).
• Denomination: Grams of gold.
• Purpose: Substitutes for holding physical gold.

Eligibility:

• Eligible Investors:
  • Resident Indian entities including individuals (solely or jointly, or on behalf of a minor child), Hindu Undivided Families (HUFs), Trusts, Universities, and Charitable Institutions.

Investment Limits:

• Minimum: 1 gram.
• Maximum:
  • 4 kg per fiscal year for individuals.
  • 4 kg per fiscal year for HUFs.
  • 20 kg per fiscal year for trusts and similar entities.
• Joint Holding: 4 kg limit applied to the first applicant.

Tenor:

• Duration: 8 years.
• Exit Option: Available in the 5th, 6th, and 7th years, exercisable on interest payment dates.

Authorized Selling Agencies:

• Channels: Nationalized Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL), and authorized stock exchanges.

Features:

• Payment Methods: Cash (up to Rs. 20,000), demand draft, cheque, or electronic banking.
• Maturity: Assured market value of gold.
• Interest: Periodical and taxable as per Income-tax Act, 1961.
• Collateral: Eligible for loans from banks, financial institutions, and NBFCs.
• Tradability: Tradable on stock exchanges within a fortnight of issuance, as notified by RBI.
• Transferability: Allowed as per Government Securities Act, 2006.
• Capital Gains Tax: Exempted on redemption for individuals.