What is the rule for premature withdrawal of Sovereign Gold Bond?
The tenure of the Sovereign Gold Bond Scheme is eight years. However, premature withdrawal can be made after the fifth year from the date of issue of coupon payment dates.
As per RBI’s press release on January 27, 2023, “(SGB 2016-17 Series I – Issue date August 05, 2016) on Sovereign Gold Bond Scheme, premature redemption of Gold Bond may be permitted after fifth year from the date of issue of such Gold Bond on the date on which interest is payable. Accordingly, the fourth due date of premature redemption of the above tranche shall be February 04, 2023 (February 05, 2023 being Sunday).”
RBI further stated that: the redemption price of SGB shall be based on simple average of closing price of gold of 999 purity, of the week (Monday-Friday), preceding the date of redemption, as published by the India Bullion and Jewellers Association Ltd (IBJA).
“Accordingly, the redemption price for premature redemption due on February 04, 2023 (February 05, 2023 being Sunday) shall be Rs 5717/- (Rupees Five thousand seven hundred and seventeen only) per unit of SGB based on the simple average of closing gold price for the week January 23-27, 2023,” the press release stated.
Income tax implications of premature redemption of Sovereign Gold Bond
The bonds have a fixed interest rate of 2.50% annually. According to the applicable tax bracket for the investor, the interest received from the sovereign gold bonds is taxable. Please be aware that the Sovereign Gold Bond Scheme has no tax deducted at source or TDS.
At the time of maturity, Sovereign Gold Bonds’ capital gains are completely tax-free. Investors must pay taxes nonetheless if they choose to cash out before the eight-year maturity period. Long-term capital gains will be taxed with an indexation benefit at a rate of 20% for premature withdrawal.