Sovereign Gold Bonds Plunge 10% Following Budget 2026 Tax Proposal
Sovereign Gold Bonds (SGBs) experienced a significant downturn on Monday, February 2, 2026, with prices falling by as much as 10% on the National Stock Exchange (NSE). This sharp decline came directly in response to a crucial tax policy change announced in the Union Budget 2026, which has fundamentally altered the investment landscape for these government-backed securities.
Budget 2026 Eliminates Tax Exemption for Secondary Market Purchases
Finance Minister Nirmala Sitharaman, presenting the Budget on February 1, 2026, proposed a major revision to the capital gains tax treatment of Sovereign Gold Bonds. Under the new proposal, the capital gains tax exemption at maturity will be granted exclusively to investors who subscribe to SGBs during their initial issuance by the Reserve Bank of India (RBI) and hold them continuously until maturity.
This change, which is set to take effect for SGBs purchased on or after April 1, 2026, means that investors buying these bonds from the secondary market—through stock exchanges like NSE or BSE—will no longer enjoy tax-free returns upon maturity, regardless of their holding period.
A Drastic Shift from Previous Tax-Friendly Regime
Previously, the tax guidelines for Sovereign Gold Bonds were remarkably straightforward and investor-friendly. Any investor who acquired an SGB and held it until maturity benefited from a complete exemption on capital gains tax, irrespective of whether the bond was purchased directly from the government during issuance or later acquired through secondary market trading.
This uniform tax treatment was a key factor that made SGBs an attractive alternative to physical gold and gold Exchange-Traded Funds (ETFs). It provided a level playing field for all long-term investors, ensuring that the tax incentive remained consistent regardless of the acquisition route.
Creating a Two-Tier Tax System: Fairness Concerns Emerge
The new regulation creates a potentially inequitable scenario. Consider two investors who hold the identical Sovereign Gold Bond and redeem it on the same maturity date. One investor purchased the bond during the initial RBI offering and will pay zero tax on their capital gains. The other investor bought the exact same bond from the secondary market and will now face taxation on their profits.
This situation, where the same financial instrument yields different tax outcomes based solely on the point of purchase, has raised significant concerns among market participants and financial experts regarding fairness, policy consistency, and the reliability of long-term tax incentives offered by the government.
Expert Analysis: A Major Setback for Secondary Market Investors
Deepak Shenoy, CEO of Capitalmind, highlighted the profound impact of this policy shift. He noted that this change represents a substantial downside for investors who purchase SGBs in the secondary market, many of whom had specifically relied on the promise of tax-exempt returns at maturity to structure their investments.
Shenoy pointed out that these investors will now be taxed on their profits just like any other capital asset, such as equities or debt funds. This effectively removes the primary tax advantage that positioned Sovereign Gold Bonds as a superior, more efficient investment vehicle compared to holding physical gold or investing in gold ETFs, which do not enjoy similar tax benefits.
The immediate market reaction—a 10% slump in SGB prices—reflects the severity of this perceived value erosion. Investors are swiftly repricing these bonds to account for the new tax liability that will apply to future secondary market transactions, fundamentally altering the risk-reward calculus for this popular asset class.
