Diversification is one of the best ways to reduce the risks of your investment portfolio. While most investors opt for stocks, mutual funds, and fixed-income investments to ensure diversification, gold investments are yet to establish themselves as efficient diversification tools.
There are several options available to investors to gain exposure to gold as an asset class like digital gold, gold ETF, physical gold, gold mutual fund, and various gold schemes like the Indian Gold Coin Scheme, Sovereign Gold Bond Scheme, and Gold Monetization Scheme.
Today, we are going to talk about Sovereign Gold Bonds and the tax implications associated with SGBs that investors must know about.
Sovereign gold bonds (SGB) hold gold in dematerialized form for investors who do not want to buy physical gold. Issued by the RBI (government), the denomination of SGB is in grams of gold. At the time of redemption, the SGB will be measured against the actual price of gold at that point in time.
There are many pros and cons of investing in SGB. These are discussed below.
The main implication of SGB is the tax benefits that investors enjoy from investing in them, such as:
Thus, there are various tax benefits given by the government for investing in SGB. Moreover, since these investments are backed by the government, it ensures that the investor will never face capital gain loss in the market and that the price of gold remains stable in the international and national markets. The investment in SGB can be done at the highest of 4 gms per person, which will yield good interest on the investment for eight years by the government; this can be termed as an additional profit to the investor. All of this is done by the government to convince the investor to invest in SGB instead of buying physical gold, which has been proved quite successful so far. Hence, if an investor is looking for a slow, secure, and safe form of investment, investing in SGB can be a great option.
Q1. Who is the issuer of SGB?
A. RBI is the issuer on behalf of the Government of India.
Q2. Who is eligible to invest in Sovereign Gold Bonds?
A. Residents of India under the provisions of the Income Tax Act are eligible to invest in SGB. This includes residents such as individuals, HUF (Hindu Undivided Family), trust, etc.
Q3. Can a person invest in SGB on behalf of a minor?
A. Yes, a person can invest in SGB on behalf of a minor, provided the investor is the guardian or parent of the minor.
Q4. Why is the interest earned on SGB not subjected to TDS?
A. Under Section 193 (iv) of the Income Tax Act, interest on government securities is not subject to TDS.
Q5. Under what section are only individuals allowed taxation benefits on SGB?
A. Under Section 47 (viic) of the Income Tax Act, only individuals are exempted from taxation on capital gains.