Budget 2026 Proposes Major Shift in Sovereign Gold Bonds Taxation
In a significant move aimed at streamlining tax benefits for gold-based investments, the Union Budget 2026 has proposed a crucial amendment to the taxation framework governing Sovereign Gold Bonds (SGBs). The change specifically targets capital gains tax exemptions, restricting them exclusively to original subscribers who purchase these bonds during the primary issuance phase.
End of Tax-Free Status for Secondary Market Transactions
The proposed amendment effectively terminates the tax-free status that previously applied to secondary buyers of SGBs. Starting from 1 April 2026, the exemption from capital gains tax at the time of redemption will be available only to investors who acquire SGBs directly during the primary issuance window and maintain continuous ownership until maturity.
"A primary buyer is someone who subscribes to the bond during the original RBI window via banks, post offices, or online platforms. A secondary buyer picks up the bond later from the market," explained CA Himank Singla, partner at SBHS & Associates. This distinction now carries substantial tax implications under the new proposal.
Legal Framework and Expert Analysis
The amendment to section 70(1)(x) clarifies that capital gains tax exemption on SGB redemption will apply solely when the bond is subscribed at the time of original issue and remains continuously held by that same investor until maturity. According to CA Singla, this means only primary buyers who never transfer their bonds will continue enjoying full exemption from capital gains tax upon redemption by the Reserve Bank of India (RBI).
"The exemption on capital gains on SGBs was available to both primary and secondary buyers if held till maturity. The benefit has been removed for secondary buyers," noted Harshal Bhuta, partner at P. R. Bhuta & Co. CAs, highlighting the fundamental shift in policy.
Practical Implications for Investors
For investors purchasing SGBs from secondary markets, the new rules introduce tangible tax liabilities. "SGBs bought from the secondary market will be liable for capital gains tax rates. This would imply a 12.5% long-term capital gains tax rate if held for more than 12 months and the slab rate if held for less than 12 months," said Balwant Jain, a Mumbai-based tax and investment expert.
Amit Maheshwari, managing partner at AKM Global, provided context: "The government is no longer issuing SGBs, and so people are largely buying SGBs in the secondary market. Till now, there was no tax (capital gains) if the bonds were held to maturity. But given the performance of gold prices and unhedged liability that it may have created for the government, capital gains tax has been introduced for secondary buyers even if SGBs are held to maturity."
This development represents a significant dampener for market participants, as many investors who purchased SGBs through secondary channels will now face taxation. Essentially, the change narrows the appeal of SGBs in secondary markets while reinforcing the government's intent to reward long-term, primary subscribers rather than market traders.
It's important to note that the 2.5% annual interest paid on SGBs remains fully taxable for all categories of holders under existing laws, as clarified by CA Singla.
Other Investment-Related Budget Changes
The Budget 2026 also introduced several other important modifications to India's investment taxation landscape:
- Simplified Employer Contribution Taxation: The budget eliminates previous confusion surrounding employer contributions to employee benefits. "So far, the employer's share of contribution in excess of 12% to the provident fund was taxable. Further, the employer's share of the total contribution towards PF, superannuation fund and the NPS in excess of ₹7.5 lakh was also taxable. This created a lot of confusion. Now the 12% limit has been deleted; in other words, it is simplified to clarify that the employer's contribution in excess of ₹7.5 lakh will be taxable as income in the hands of the employee. This brings clarity and avoids any double taxation," explained Sonu Iyer, tax partner and national leader of people advisory services at EY India.
- Closing Tax Loopholes: The budget proposals remove a provision that allowed taxpayers to deduct interest costs against dividend income when equity shares or mutual fund units were purchased using loans. "Earlier, if the taxpayer could prove that equity shares or mutual fund units were bought using a loan, the interest cost could be used as a deduction against dividend income. However, the new budget proposals remove this provision," said Nitesh Buddhadev, a Mumbai-based chartered accountant and founder of Nimit Consultancy.
- Streamlined TDS Exemption Process: Investors holding securities of multiple companies and earning dividend or interest income will now submit Form 15G or Form 15H directly to the depository rather than to each individual company. Form 15H is required for senior citizens seeking exemption on tax deduction at source (TDS) on dividend or interest income, while Form 15G serves the same purpose for non-senior citizens.
- Public Sector Asset Monetization: The budget proposed monetizing real estate assets of public sector units through special real estate investment trusts (REITs), creating new investment avenues while optimizing government asset utilization.
These comprehensive changes reflect the government's broader strategy to refine India's investment ecosystem, promote long-term savings behavior, and enhance tax compliance across financial markets.
