Do You Own Sovereign Gold Bonds? Budget 2026 Ends Key Tax Breaks — Here's What Investors Can Do

For nearly a decade, Sovereign Gold Bonds (SGBs) were spoken about as the gold standard for tax-efficient investing — offering gold-linked returns, a fixed 2.5% annual interest, and tax-free redemption with the sovereign issuer. The Union Budget for 2026-27 has quietly and decisively redrawn that equation.

Two amendments, effective 1 April 2026, strip away key exemptions that investors had come to rely on, sharply narrowing when-and for whom-SGBs remain tax-free. The result is a clear bifurcation of outcomes that investors now need to price in.

What Exactly Has Changed

Until now, capital gains on SGBs were exempt if bonds were redeemed with the Reserve Bank of India-either at the eight-year maturity or via RBI-notified premature redemption windows after five years.

Budget 2026 makes two pivotal changes:

• Secondary market buyers lose tax-free maturity benefit: From April 2026, tax-free capital gains at maturity will apply only to investors who subscribed at issue and held till maturity. Anyone who bought SGBs on exchanges-even if held for eight years-will now pay capital gains tax.
• Premature redemption exemption withdrawn for all: The long-standing exemption on gains from premature redemption after five years is removed across the board.

A Narrow, Final Tax-free Exit Before April

There is, however, a small window left open. As per the RBI's premature redemption calendar for October 2025 to March 2026, four series-2019-20 Series IV, 2019-20 Series X, 2020-21 Series VI and 2020-21 Series XII-are eligible for premature redemption in February 2026, subject to the five-year holding condition.

If redemption is notified as scheduled, any holder-primary subscriber or secondary buyer-can exit these specific series with tax-free gains before April 2026. Requests can be routed via banks, depositories such as NSDL and CDSL, or RBI Retail Direct. After March, this route closes.

How SGBs Will Be Taxed From April 2026

According to Nisreen Mamaji, CFP and Founder, MoneyWorks FS, the revised framework creates two distinct classes of SGB investors:

• Primary issue subscribers (held till maturity): Capital gains remain tax-free; the 2.5% annual interest continues (taxable).
• Secondary market buyers: Capital gains taxable-about 12.5% for long-term holdings (over 12 months) and slab rates for short-term; interest remains taxable.

Premature redemption: Taxable for everyone, regardless of how the bond was acquired.

"The same SGB now carries two completely different tax outcomes depending purely on whether it was bought at issue or from the exchange," Mamaji said, adding that this distinction is already influencing secondary market behaviour.

Do SGBs Still Beat Gold ETFs Or Physical Gold?

Mamaji notes that SGBs earlier stood apart because of tax-free appreciation plus interest. With capital gains now taxable for secondary buyers, SGBs sit much closer to gold ETFs or physical gold from a tax perspective-while still carrying liquidity constraints.

Vishal Dhawan, Founder and CEO, Plan Ahead Wealth Advisors, adds that the interest still matters, but only if investors understand the trade-offs. "SGBs are the only gold instrument that pay a regular 2.5% interest over and above price appreciation," he said. "But if you buy a bond close to maturity from the secondary market, gains could be taxed at your marginal rate."

Premiums, Liquidity, And Allocation Matters

Another friction point is pricing. SGBs on exchanges like the NSE and BSE have historically traded at premiums of 5-12%. Dhawan cautions that paying up can wipe out the benefit of interest. "You might earn 2.5% annually, but an upfront premium can make the overall return math unattractive," he said. 

Crucially, Dhawan warns against letting policy changes or price moves drive overexposure. "Gold should remain a diversifier. Even at the upper end, 10-20% of a portfolio is a sensible allocation. Beyond that, you risk skewing long-term returns," he said.

Mamaji echoes the reset for secondary buyers, saying that SGBs should now be evaluated for sovereign safety, gold exposure and interest-not tax-free appreciation.

ALSO READ: Gold, Silver Bounce Back: Key Factors Behind The Rally And What Experts Predict

Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.