Budget 2026: What Sovereign Gold Bond Investors Need to Know

Union Budget proposals unveiled by Finance Minister Nirmala Sitharaman have unsettled Sovereign Gold Bond investors after a rule change removed the capital gains tax exemption on secondary market SGB purchases.

Under the proposal, only investors who bought SGBs directly from the Reserve Bank of India during the original issuance and hold them till maturity will continue to enjoy full capital gains tax exemption. Those who acquired SGBs later from the stock exchange will lose this benefit from April 1, 2026.

Why This Is a Big Shift

For years, SGBs have been among India’s most tax-efficient investment products. Along with a fixed annual interest of 2.5 percent, investors enjoyed complete exemption from capital gains tax at maturity regardless of whether the bond was purchased at issue or from the secondary market.

The new Budget draws a sharper line. Going forward, tax-free redemption will apply only if the investor subscribed to the bond at issuance and held that very bond until maturity. If the SGB was purchased from the secondary market, the price difference at redemption will be treated as taxable capital gains.

In simple terms, the government plans to ring-fence the tax benefit around original issuance. The intent is to curb arbitrage opportunities created when investors bought older SGB series at discounts in the market and still exited with tax-free gains at maturity.

Government’s Rationale

The government believes the change restores fairness between primary subscribers and secondary market buyers. By limiting the exemption to original investors, it aims to align SGB taxation more closely with other market-linked assets and prevent unintended tax advantages from secondary trading.

Market Pushback

The announcement has drawn immediate concern from market watchers.CEO Deepak Shenoy warning that the change would significantly hurt investors who purchased SGBs from the secondary market expecting tax-free redemption.

With the exemption removed, these investors will now be taxed like holders of any other capital asset, effectively erasing the key advantage that made secondary-market SGBs more attractive than physical gold or gold ETFs.

Who Remains Unaffected

Operationally, nothing changes for original subscribers. Investors who bought SGBs directly from the RBI and hold them till maturity will continue to enjoy full capital gains tax exemption. Early redemption through RBI-designated exit windows will also follow existing rules.

New Tax Treatment Explained

Secondary market SGBs will now be treated like regular capital assets:

• If held for a shorter period, gains will be taxed as per the investor’s income slab.

• Long-term holdings will attract applicable long-term capital gains tax, without the special exemption that SGBs historically offered.

What Investors Need to Consider

The revised rule will take effect from April 1, 2026, and apply to FY 2026–27 and subsequent years. Investors who purchased SGBs on the stock exchange and planned to hold them till maturity should reassess expected post-tax returns and factor in the additional tax liability.

While Sovereign Gold Bonds continue to offer interest income and sovereign backing, Budget 2026 clearly redraws the tax landscape preserving benefits for original subscribers while closing the door on tax-free gains for secondary market buyers.