I invested in sovereign gold bonds (SGBs) in FY16 and received the maturity proceeds in FY24. According to the terms, the proceeds are exempt from long-term capital gains tax if redeemed on maturity. My question is: Am I required to declare my earnings from these bonds in my ITR2 for AY25? If so, where? I do not find any provision in Schedule Capital Gains in the ITR2 return.
– Praveen Godbole
SGBs are government securities issued by the Reserve Bank of India, and are denominated in grams of gold. Capital gains arising on redemption of the bonds on maturity would be considered as an exempt transfer under section 47(viic) of the Income Tax Act, 1961 and hence, not liable to tax.
While HUFs, trusts, universities and charitable institutions are also eligible to invest in these bonds, exemption from capital gains can be availed only by an individual.
While the tenor of the bonds is eight years, they can be redeemed after the fifth year. The exemption provision does not distinguish between redemption on maturity and premature redemption. Therefore, one may be able to take a view that capital gains arising on redemption of the bonds, irrespective of whether on maturity, or a premature redemption, would be exempt from tax.
You should disclose such exempt gains under ‘other exempt income’ in Schedule EI of your income tax return. In the utility drop down, select ‘any other’ as the nature of income, and provide a description.
Note: not all capital gains from the transfer of the bonds is exempt from tax. These bonds can also be traded on a recognised stock exchange. Capital gains arising on sale of the bonds to another investor would be taxable.
If the bonds are held for more than 12 months, the investor will be able to claim the benefit of indexation of the cost of acquisition for computing long-term taxable capital gains.
Such long-term capital gains would be taxable at 20% plus applicable surcharge and education cess after considering the indexation, or 10% plus applicable surcharge and education cess without indexation, whichever is more beneficial.
If the bonds sold to another investor, are held for 12 months or less, short-term capital gains on the sale will be taxable at the rate applicable to the investor.
The taxable gains have to be be disclosed in the return of income in Schedule CG, dealing with capital gains.
In addition to the increase in the value of the bonds in line with the price of gold, an investor also receives interest on the initial issue price of the bonds, twice a year. Furthermore, in case of redemption, interest is paid to the investor along with the maturity amount.
Interest on these bonds, including amounts received upon redemption, is taxable as ‘Income from other sources. You should disclose this interest in Schedule OS of your income tax return.
Mahesh Nayak is director at CNK & Associates LLP
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