Sovereign Gold Bond Tax Rules for ITR AY 2026-27: Interest, Redemption, Capital Gains and Reporting

Interest earned from an SGB is taxable under the head Income from Other Sources.

The interest rate depends on the terms of the SGB issue. Several SGB series carry interest at 2.5% per year on the issue price. The interest is not calculated on the current gold price or market value of the bond.

For example if an investor holds SGBs with an issue value of Rs. 4,00,000 and the interest rate is 2.5%.

The annual interest will be: Rs. 4,00,000 × 2.5% = Rs. 10,000

The investor must report Rs. 10,000 under:

Schedule OS → Income from Other Sources → Interest income

This amount is added to total income and taxed as per the applicable income tax slab.

The tax treatment remains the same under the old tax regime and the new tax regime. The slab rate and rebate rules will change based on the tax regime selected by the taxpayer.

TDS is not deducted from SGB interest. Still, the interest is taxable. The taxpayer must not leave out this income just because Form 26AS does not show any TDS.

The interest amount should be checked with:

• bank statement;
• SGB certificate;
• demat statement;
• interest credit details; and
• Annual Information Statement.

If the interest is not present in AIS, it must still be reported in the ITR.

Section 47(viic) of Income Tax Act states that redemption of an SGB by an individual is not treated as a transfer. So, no capital gains tax arises. However, interest received from the SGB during the year remains taxable under Schedule OS.

SGBs have a tenure of eight years. RBI also provides an early redemption facility after the lock-in period, on the prescribed interest payment dates.

For AY 2026-27, Section 47(viic) covers redemption by an individual. The section does not state that exemption is restricted to redemption at the end of eight years.

So, where an individual completed premature redemption through RBI on or before 31 March 2026, the gain is exempt under Section 47(viic).

This rule does not cover a sale on the stock exchange. A sale through NSE or BSE is a transfer to another investor and not redemption through RBI.

For FY 2025-26, Section 47(viic) does not require the individual to be the first subscriber of the bond.

Therefore, where an individual purchased an SGB from the secondary market and RBI redeemed it on or before 31 March 2026, the redemption gain is exempt.

A change introduced from 1 April 2026 restricts this benefit. That change does not apply to AY 2026-27.

The exempt redemption gain should not be entered as taxable capital gain in Schedule CG.

Report it under:

Schedule EI → Other exempt income

The description can be written as:

Gain on redemption of Sovereign Gold Bond exempt under Section 47(viic)

The taxpayer should report the gain amount, which is the difference between the redemption value and the purchase cost. The full redemption amount is not exempt income because it includes return of the investment cost.

The taxpayer should keep:

• purchase proof;
• subscription receipt or contract note;
• SGB certificate;
• demat statement;
• RBI redemption advice; and
• bank statement showing the redemption credit.

These records helps if the Income Tax Department asks for details.

Section 47 treats SGB redemption by an individual as not being a transfer.

Because of this, a loss on such redemption is not treated as capital loss. The taxpayer cannot set off or carry forward this amount.

A sale on NSE or BSE is taxable. The exemption for RBI redemption does not apply. The tax rate depends on how long the listed SGB was held.

A listed SGB held for 12 months or less is treated as a short-term capital asset. The short-term capital gain is added to total income and taxed at the applicable slab rate.

Section 111A does not apply to SGBs. Section 111A covers specified equity shares, equity mutual fund units and business trust units.

A listed SGB held for more than 12 months is treated as a long-term capital asset. For a sale during FY 2025-26, the long-term capital gain is taxed under Section 112 at 12.5% without indexation.

The taxpayer cannot increase the purchase cost by using the Cost Inflation Index. For listed SGBs sold during FY 2025-26, long-term capital gain is taxed at 12.5% without indexation.

The exemption of Rs. 1.25 lakh under Section 112A applies to specified equity assets. SGBs do not fall under Section 112A. So the full long-term capital gain from an SGB sale is taxable under Section 112.

The capital gain is calculated as:

Sale value Less: Sale expenses Less: Purchase cost = Capital gain or loss

Sale expenses include brokerage and charges linked with the sale.

For an SGB purchased through the stock exchange, the purchase cost includes the price paid for the bond and purchase expenses forming part of the contract note.

The correct ITR form depends on the type of SGB income and other income earned by the taxpayer.

ITR-1 is used where the taxpayer has SGB interest income and meets all other conditions of the form. A taxpayer with taxable capital gain from sale of SGB cannot use ITR-1.

If exempt income or another income item falls outside the conditions of ITR-1, the taxpayer must use the required form.

ITR-2 is used by an individual or HUF who has capital gains and does not have business or professional income. An investor who sold SGBs during FY 2025-26 will use ITR-2 if the bonds were held as investment.

ITR-3 is used where the taxpayer has income from business or profession. It also applies where SGB transactions form part of a trading business and the bonds are shown as stock-in-trade.

Use the following schedules:

• Schedule OS: For SGB interest.
• Schedule CG: For taxable gain or loss from sale.
• Schedule EI: For exempt gain from RBI redemption.
• Schedule CYLA and BFLA: For set-off of capital losses.
• Schedule CFL: For capital loss carried forward.

A short-term capital loss is set off against short-term or long-term capital gains.

A long-term capital loss is set off against long-term capital gains.

The return must be filed within the due date under Section 139(1) where the taxpayer wants to carry forward capital loss.

• Interest is taxable even when the redemption gain is exempt.
• A sale on NSE or BSE is taxable capital gain. It is not RBI redemption.
• For a listed SGB sold during FY 2025-26, the long-term holding period is more than 12 months.
• Indexation does not apply to long-term gain from sale of a listed SGB during FY 2025-26.
• The Rs. 1.25 lakh exemption under Section 112A does not cover SGBs.
• Interest must be reported even when Form 26AS does not show TDS.
• Section 47(viic) gives the exemption to an individual. It does not give the same exemption to an HUF, firm, company or trust.

Before filing the return, check these points:

• SGB interest is reported in Schedule OS.
• RBI redemption gain is reported in Schedule EI.
• Stock exchange sale is reported in Schedule CG.
• Purchase date and sale date are correct.
• The 12-month holding period test is used.
• Long-term gain is taxed at 12.5% without indexation.
• Bank statement matches interest and redemption entries.
• Broker statement matches the capital gain calculation.
• Capital loss is reported before the due date where carry forward is required.

For AY 2026-27, interest from Sovereign Gold Bonds is taxable at the applicable slab rate. Redemption by RBI is exempt under Section 47(viic) where the holder is an individual. This includes premature RBI redemption and redemption of SGB bought from the stock exchange, where the redemption took place on or before 31 March 2026.

A sale to another investor is taxable. A listed SGB held for 12 months or less gives short-term capital gain, which is taxed at slab rate. A listed SGB held for more than 12 months gives long-term capital gain, taxed at 12.5% without indexation.