When it comes to investing in an SGB, the tax benefits are only one side of the coin. The other side is the tax implications. Understanding both these sides provides a holistic view of your returns.
Here is a detailed look into the tax implications of investing in Sovereign Gold Bonds.
Although no TDS deduction on the interest is one of the SGB tax benefits, the interest amount as a whole is considered income. As such, it is subject to taxation. This is because your interest income from an SGB falls under the category of IFOS (Income From Other Sources).
The taxation is dependent on the tax slab under which your total income is taxable. For example, if your total taxable income, after adding SGB interest, falls under the tax slab of 10%, then the whole taxable income is taxed at 10%.
STCG, or short-term capital gains, are the gains that you earn when you sell your investment at a profit within a certain period. For SGBs, this period is 3 years. This means that if you sell your bond within 3 years of purchase and have made a gain (profit), then it is taxable at the slab rate of your total taxable income.
To determine the applicable tax slab, your STCG and all other applicable incomes are added to get the net taxable income.
LTCG are the gains that you earn when you sell your capital assets after the STCG limit but before maturity. For SGBs, this is after 3 years but before 8 years as the maturity period is 8 years.
This means that if you sell your bond after 3 years but before maturity and see gains (profit), then it is taxable at a flat rate of 20% alongside indexation benefits. However, if you have not availed indexation, then the tax rate reduces to 10%.
Unlike on physical gold, the GST on SGB is only applicable to the brokerage you pay. While investing, you will have to pay GST at the flat rate of 18% on the brokerage amount.
Investing in any instrument is a decision that you should make only after understanding its current and future impact on your finances. A good way of doing this is by considering the taxation that comes into effect while investing and redeeming the investment.
However, tax benefits on investments in SGBs can change based on the government’s policies or regulations. So, make sure you take all the Sovereign Gold Bond tax benefits and implications into consideration before investing.