[Opinion] Budget 2026 Curtails Tax-Free Status of Sovereign Gold Bonds

Meenakshi Subramaniam – [2026] 183 taxmann.com 11 (Article)

Alas, the Sovereign Gold Bond is no longer sovereign! To the shock and dismay of gold lovers, the Budget 2026 has ordained that only those who have subscribed to Sovereign Gold Bonds (SGBs) through RBI can get tax exemption. Such individuals should have held the bonds continuously from the date of issue until their redemption at maturity. All the rest have to pay capital gains tax, from April 1, 2026 onwards.

Previously, any capital gains realised upon the redemption of SGBs at maturity were tax-free for all investors, regardless of whether the bonds were purchased during the initial offering or from the secondary market. The Finance Bill 2026 amends this provision to introduce stricter conditions. To qualify for the capital gains tax exemption, an investor must now meet all of the following criteria:

• he must be an individual person
• he must have got the bonds from RBI, not stock exchange
• he must never ever sell them

1. Tax Tangle

Section 70(1)(x) of Income Tax Act will be amended to bring about this drastic change. This section provides a capital gains tax exemption on the redemption of Sovereign Gold Bonds (SGBs). Now ,this exemption will specifically apply to subscribers who bought the bonds at the original issue and held them until maturity.

The step means that SGB transactions will be regarded as transfers for purposes of capital gains tax. Which Section 70 (1) (x) never wanted, in the first place!

2. Memorandum Statement

The Budget Memorandum announces, in a matter-of-fact manner:

Exemption for Sovereign Gold Bond

‘The provisions of section 70(1)(x) of the Act provide an exemption from capital gains tax in respect of income arising from redemption of Sovereign Gold Bonds issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015. Sovereign Gold Bonds have been issued by the Reserve Bank of India on a recurring basis through multiple series notified from time to time, each constituting a separate issuance.

In order to ensure uniform application of the exemption across all such issuances and to align the provision with its intended scope, it is proposed to amend section 70(1)(x) to provide that the exemption shall be available only where the Sovereign Gold Bond is subscribed to by a subscriber at the time of original issue and is held continuously until redemption on maturity, for all Sovereign Gold Bonds issued by the Reserve Bank of India from time to time.

These amendments take effect from April 1, 2026 and shall apply un relation to the tax year 2026-27 and subsequent tax years.’

[Clause35]

3. Strict Rule

The ‘tax-free’ Sovereign Gold Bonds are now restricted to primary investors only. If you have been buying SGBs from the stock exchange (secondary market) to rake in tax-free maturity, the scene has changed. Under the previous regime, anyone holding an SGB until maturity enjoyed a tax-free exit on capital gains, regardless of where they bought it. The Budget, 2026 changes this drastically.

In all these conditions, tax exemption will be lost – if an investor buys an SGB from the secondary market, or sells an originally allotted bond and later re-buys it, the exemption will be lost. Only original allottees who hold the bond without break, till maturity will continue to enjoy tax-free capital gains. This rule applies across all RBI bond series, leaving no leeway for ambiguity.

Click Here To Read The Full Article