Sovereign Gold Bond exit options: 8-year maturity, the 5-year early redemption window, and tradable secondary market
Three SGB exit routes — 8-year maturity, the year-5 early redemption window, and NSE/BSE sale. Section 47(viic) exemption only survives on the first two; secondary market sale triggers 12.5% LTCG.
When the Reserve Bank of India closed Series IV of FY 2023-24 in February 2024, that was the last fresh Sovereign Gold Bond tranche to come to market. The Ministry of Finance has not authorised a new tranche in FY 2024-25 or FY 2025-26, leaving an entire investment cohort focused on a single question — when and how to exit the holdings they already own. The 2015-launched scheme has matured into a portfolio decision rather than a subscription one, with the earliest tranches (issued November 2015) having already redeemed in November 2023 and the FY 2017-18 series completing their 8-year tenor through 2025-26.
For an investor sitting on SGBs issued between FY 2018-19 and FY 2023-24, three exit paths are available, and each carries a sharply different tax outcome. Hold to the 8-year maturity and the capital gain is fully exempt under Section 47(viic) of the Income-tax Act 1961. Use the early redemption window in years 5 through 8 and the same exemption applies. Sell the bond on the NSE or BSE secondary market and the gain is taxed — 20% short-term if held under 12 months, or 12.5% long-term without indexation if held longer, under the rules notified in the Finance (No. 2) Act 2024.
This piece compares the three exit routes for the same underlying asset — 999-purity gold tracked by the India Bullion and Jewellers Association (IBJA) — and arrives at a recommendation tailored to four investor profiles.
Side-by-Side Comparison
The SGB Scheme was notified by the Government of India under the Government Securities Act 2006 and is operationally managed by the RBI. Each bond is denominated in one gram of 999-purity gold; the maximum subscription per individual per fiscal year is 4 kg. Each tranche has an 8-year tenor with a coupon of 2.50% per annum on the issue price, paid half-yearly.
The exit routes diverge sharply on liquidity, pricing, and tax. The table below contrasts the three on the dimensions that actually drive net realisations.
| Exit route | When available | Price received | Tax on capital gain | Lock-up after triggering exit |
|---|---|---|---|---|
| Hold to 8-year maturity | Issue date plus 8 years | Simple average of IBJA 999 closing price for the preceding 3 working days | Exempt for individuals under Section 47(viic) | None — bond extinguishes |
| Early redemption to RBI | Half-yearly windows on coupon-payment dates in years 5, 6, 7 | Same IBJA 3-day average | Exempt under Section 47(viic) — early redemption is also a redemption | Application window typically 10 to 30 days before coupon date |
| Secondary market sale | Any trading day after listing (usually 2 to 4 weeks post-issue) | NSE/BSE quoted price — often a 4% to 10% discount to NAV due to thin order books | 20% STCG if holding 12 months or less; 12.5% LTCG without indexation if over 12 months | None |
The pricing difference is critical. RBI redemption pays the IBJA reference rate to the rupee. Secondary market trades happen on order-book matching with limited buyers, and SEBI data on the SGB segment shows daily turnover concentrated in only a handful of older tranches. The discount-to-NAV is the price an early seller pays for liquidity, and it can wipe out two to three years of accrued coupon income on bonds bought below the IBJA spot.
A second comparison investors often confuse is SGB-versus-physical-gold rather than the three SGB exit routes themselves. The 2.50% coupon and Section 47(viic) exemption make a hold-to-maturity SGB structurally superior to physical bars on post-tax return, but only if the investor was willing to lock funds for 8 years to begin with. The same logic does not extend to a hurried secondary market exit in year 3.
Tax Treatment
Coupon income
The 2.50% per annum coupon — paid half-yearly on the original issue price, not on the bond's market value — is fully taxable at the investor's slab rate in the year of receipt. It is reported under Income from Other Sources in the ITR. There is no TDS on SGB interest, but failure to report invites scrutiny under Sections 234A and 234B for short payment and delayed filing.
A taxpayer in the 30% slab of the new regime FY 2025-26 (income above Rs 24 lakh, as per the slab structure now in force) effectively receives 1.75% net after-tax on the issue price. The headline 2.50% is gross.
Capital gain at maturity (8 years)
Section 47(viic) of the Income-tax Act 1961 provides that any transfer by way of redemption of Sovereign Gold Bonds issued by the RBI under the SGB Scheme, made by an assessee being an individual, is not regarded as a transfer for capital-gains purposes. The gain — the difference between the IBJA-linked redemption price and the original issue price — is therefore fully exempt for individuals.
This exemption is restricted to individuals. HUFs, companies, trusts, and AOPs holding SGBs do not qualify. They pay LTCG at 12.5% without indexation if the bond was held over 12 months, mirroring the Finance Act 2024 listed-bond rates.
Capital gain on early redemption (5 to 8 years)
CBDT clarifications referenced in the RBI Master Direction confirm that the redemption language in Section 47(viic) covers both maturity redemption and the half-yearly early redemption window. Investors using the year-5 onwards window therefore receive the same individual-only exemption. Early redemption requests must reach the receiving office (bank, post office, or depository participant) at least 10 days before the coupon payment date in the relevant half-year.
Capital gain on secondary market sale
A sale on NSE or BSE is a transfer — not a redemption — and falls outside Section 47(viic). The Finance (No. 2) Act 2024, effective for transfers on or after 23 July 2024, taxes listed-bond gains at:
| Holding period | Tax rate | Indexation |
|---|---|---|
| 12 months or less | 20% STCG | Not applicable |
| Over 12 months | 12.5% LTCG | Removed for all transfers post 23-Jul-2024 |
The 12-month threshold applies because SGBs are listed bonds. The Rs 1.25 lakh per-annum exemption available for listed equity does not extend to bonds; the entire long-term gain is taxable from the first rupee.
A worked example. An investor who subscribed to FY 2017-18 Series I at Rs 2,901 per gram and sells one unit at Rs 7,800 on NSE in March 2026 books a long-term gain of Rs 4,899. The tax is 12.5% of Rs 4,899, i.e. Rs 612 per gram. The same investor holding the bond for two more months until its 8-year maturity in May 2026 would pay zero tax on the identical economic gain. The cost of liquidity is the entire LTCG bill.
Surcharge and cess
Surcharge applies to the LTCG bill, capped at 25% in the new regime even for income above Rs 5 crore (the higher 37% rate of pre-2023 vintage no longer applies in the new regime). Health and education cess of 4% applies on tax plus surcharge.
Who Should Pick Which
The exit decision is rarely binary. It depends on three variables — time left to maturity, the investor's residual goal, and the discount-to-NAV available on the secondary market on the sale date. Profile the holding against the four buckets below before deciding.
Profile A — 7+ years to maturity, no urgent need
Recommendation: hold to maturity. The combination of 2.50% half-yearly coupon plus the Section 47(viic) exemption is a structurally superior package to any reasonable equity replacement of similar volatility. A secondary-market exit at this stage forfeits the maturity exemption and locks in tax leakage of 12.5% on the gain. Unless a one-off liquidity event genuinely requires the capital, the holding clock should keep ticking through to year 8.
Profile B — 3 to 5 years from issuance, liquidity becoming a constraint
Recommendation: wait until year 5, then use the early redemption window. Early redemption preserves the Section 47(viic) exemption while shortening the wait by up to three years. Selling on the exchange before year 5 means paying LTCG at 12.5% on what would otherwise have been a tax-free exit.
Use Oquilia's gold calculator to model the year-5 redemption value against current secondary-market quotes and visualise the breakeven discount where exchange exit becomes equivalent to early redemption net of tax. A 4% NAV discount roughly equates to the LTCG cost on a 7-year-old SGB.
Profile C — Need to exit before year 5
Recommendation: secondary market, but only after checking the NAV discount. The bond is illiquid, and discounts of 6% to 10% are not unusual on older tranches. If the discount exceeds the LTCG you would save by waiting one or two quarters to reach year 5, the wait is the better trade. Check NSE's SGB segment quotes for your specific tranche before committing — prices vary tranche by tranche, not just by date.
The arithmetic for a single gram, assuming an Rs 7,800 NAV and an Rs 4,899 unrealised gain on an FY 2017-18 bond:
| Exit route | Gross proceeds | Tax payable | Net |
|---|---|---|---|
| Sell now at 5% discount | Rs 7,410 | Rs 564 (12.5% on Rs 4,509) | Rs 6,846 |
| Wait for year-5 redemption | Rs 7,800 (assuming flat) | Nil | Rs 7,800 |
The Rs 954 gap on a single gram is the cost of accelerating the exit by one quarter. Scaled to a 200-gram holding, that is Rs 1.90 lakh of tax-and-discount drag for a 90-day liquidity convenience.
Profile D — HUF, company, or trust holder
Recommendation: model both routes carefully. The Section 47(viic) exemption is unavailable to non-individual assessees. Both maturity redemption and secondary market sale attract LTCG at 12.5%. The deciding factor becomes the bond's secondary-market discount on the proposed sale date. If the discount is under 1.5%, holding to maturity is essentially a coupon-versus-time-value question, similar to any other fixed-income hold.
A useful frame is the SIP versus lumpsum drawdown analysis — non-individual holders effectively treat SGBs the same way they treat any listed bond post-Finance Act 2024, with no special tax shield to compensate for the 8-year lock.
For investors weighing SGBs against other long-duration tax-advantaged vehicles, the ELSS-versus-PPF 15-year comparison sets out the post-tax XIRR framework — the same lens applies here, with SGBs slotting between the two on tax efficiency for individual holders. Use the lumpsum calculator to project maturity proceeds across a range of IBJA price scenarios for the 2026-2032 window.
A related case for resident investors comparing SGBs with international gold-tracking funds — taxed at 12.5% without indexation since the Finance Act 2024 — was covered in our international fund tax piece on the listed-fund regime overhaul.
FAQ
Does the Section 47(viic) exemption apply if I gift the SGB to my spouse before maturity?
The exemption attaches to redemption rather than original ownership. If the spouse holds the bond until maturity and personally redeems it, Section 47(viic) is available to the spouse on her own redemption. The gift itself is exempt under Section 56(2)(x) when transferred between specified relatives. However, income clubbing under Section 64(1)(iv) may apply to the coupon received by the spouse on assets transferred without adequate consideration, so the half-yearly 2.50% interest will be assessed in the donor's hands.
Is the half-yearly 2.50% coupon TDS-deductible?
No. The RBI Master Direction on SGB confirms no TDS is deducted at source on coupon payments. The recipient must declare the gross interest under Income from Other Sources in the ITR and pay advance tax under Section 208 if the total tax liability exceeds Rs 10,000 in the year. Two missed instalments trigger interest under Sections 234B and 234C at 1% per month.
Can I claim Section 80C deduction on SGB subscription?
No. SGB subscription does not qualify for any deduction under Chapter VI-A. The only tax incentive on the instrument is the maturity-redemption capital-gains exemption under Section 47(viic), which is available only to individuals. Subscribers should not confuse SGBs with tax-saving NSC or ELSS, both of which are 80C-eligible up to Rs 1.5 lakh in the old regime.
What happens if I sell on NSE three days before the maturity date?
Two consequences. First, the transaction is treated as a transfer rather than a redemption, so LTCG of 12.5% applies on the entire gain. Second, you may not find a buyer at NAV in the final week — quoted prices typically converge to within 0.5% of redemption value but liquidity remains thin. The economic cost of selling three days before maturity instead of waiting is usually the full LTCG bill, which is rarely justifiable for a three-day acceleration.
Are SGBs allowed as collateral for a loan, and does pledging affect the exemption?
Yes. Banks lend against SGBs at loan-to-value ratios broadly aligned with the RBI's gold-loan LTV norms (currently 75% on the underlying bullion value). Pledging does not constitute a transfer under Section 2(47) of the Income-tax Act, so the maturity exemption remains intact for the bondholder. The bond continues to accrue 2.50% coupons in the original holder's name during the pledge term.
If I bought an SGB on the secondary market last year, do I still get the maturity exemption?
Yes. The Section 47(viic) exemption applies to the individual redeeming the bond at maturity, regardless of whether the bond was originally subscribed in primary issuance or later acquired on the exchange. Your acquisition cost for capital-gains computation is the price you paid on NSE or BSE, not the original issue price the first holder paid. The exempt gain is therefore measured between your purchase price and the IBJA redemption rate.
Will the government issue new SGB tranches in FY 2026-27?
The RBI has not confirmed any FY 2025-26 or FY 2026-27 tranches as of May 2026. The Ministry of Finance is reportedly reviewing the scheme's fiscal cost in light of the gold price rally since 2023 — every existing tranche now carries a contingent redemption liability well above the original issue value. Monitor RBI's notifications page at rbi.org.in/notifications for fresh announcements rather than rely on intermediary projections.
Sources & Citations
- RBI Notifications — Sovereign Gold Bond Scheme — Reserve Bank of India
- Income-tax Act 1961 — Section 47(viic) capital gains exemption on SGB redemption — Income Tax Department, Government of India
- Finance (No. 2) Act 2024 — listed-bond capital gains regime — Ministry of Finance, Government of India
Frequently Asked Questions
Does the Section 47(viic) exemption apply if I gift the SGB to my spouse before maturity?
The exemption attaches to redemption rather than original ownership. If the spouse holds the bond until maturity and personally redeems it, Section 47(viic) is available to the spouse on her own redemption. The gift itself is exempt under Section 56(2)(x) when transferred between specified relatives. However, income clubbing under Section 64(1)(iv) may apply to the coupon received by the spouse on assets transferred without adequate consideration, so the half-yearly 2.50% interest will be assessed in the donor's hands.
Is the half-yearly 2.50% coupon TDS-deductible?
No. The RBI Master Direction on SGB confirms no TDS is deducted at source on coupon payments. The recipient must declare the gross interest under Income from Other Sources in the ITR and pay advance tax under Section 208 if the total tax liability exceeds Rs 10,000 in the year. Two missed instalments trigger interest under Sections 234B and 234C at 1% per month.
Can I claim Section 80C deduction on SGB subscription?
No. SGB subscription does not qualify for any deduction under Chapter VI-A. The only tax incentive on the instrument is the maturity-redemption capital-gains exemption under Section 47(viic), which is available only to individuals. Subscribers should not confuse SGBs with tax-saving NSC or ELSS, both of which are 80C-eligible up to Rs 1.5 lakh in the old regime.
What happens if I sell on NSE three days before the maturity date?
Two consequences. First, the transaction is treated as a transfer rather than a redemption, so LTCG of 12.5% applies on the entire gain. Second, you may not find a buyer at NAV in the final week — quoted prices typically converge to within 0.5% of redemption value but liquidity remains thin. The economic cost of selling three days before maturity instead of waiting is usually the full LTCG bill, which is rarely justifiable for a three-day acceleration.
Are SGBs allowed as collateral for a loan, and does pledging affect the exemption?
Yes. Banks lend against SGBs at loan-to-value ratios broadly aligned with the RBI's gold-loan LTV norms (currently 75% on the underlying bullion value). Pledging does not constitute a transfer under Section 2(47) of the Income-tax Act, so the maturity exemption remains intact for the bondholder. The bond continues to accrue 2.50% coupons in the original holder's name during the pledge term.
If I bought an SGB on the secondary market last year, do I still get the maturity exemption?
Yes. The Section 47(viic) exemption applies to the individual redeeming the bond at maturity, regardless of whether the bond was originally subscribed in primary issuance or later acquired on the exchange. Your acquisition cost for capital-gains computation is the price you paid on NSE or BSE, not the original issue price the first holder paid. The exempt gain is therefore measured between your purchase price and the IBJA redemption rate.
Will the government issue new SGB tranches in FY 2026-27?
The RBI has not confirmed any FY 2025-26 or FY 2026-27 tranches as of May 2026. The Ministry of Finance is reportedly reviewing the scheme's fiscal cost in light of the gold price rally since 2023 — every existing tranche now carries a contingent redemption liability well above the original issue value. Monitor RBI's notifications page at rbi.org.in/notifications for fresh announcements rather than rely on intermediary projections.