Wouldn?t it be great if you get an additional benefit on the Gold that you?re planning to buy for your daughter?s marriage or for investment purpose? Government of India with consultation to Reserve Bank of India is planning to issue Sovereign Gold Bonds which enables investors to earn interest on the amount invested in Gold Bonds. Let?s see the features, benefits and taxation of upcoming Sovereign Bonds.
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What are Sovereign Gold Bonds?
Sovereign Gold Bonds are the alternatives of physical gold and are in form of certificates issued by the Government. The certificate indicates the amount, date and the quantity of gold bought by the investor. The certificate also carries the rate of interest along with the value of gold bought.
What are the features of Sovereign Gold Bonds?
Sovereign Gold Bonds are similar to fixed deposit certificates or National Savings Certificates having prefixed interest rates and tenure. Sovereign Gold Bonds possess the following features as per the notification?issued by RBI on 3oth October.
Only Indian Residents including individuals, HUFs, trusts, Universities, charitable institutions are eligible to invest in Sovereign Gold Bonds. Companies, Firms, AOP, BOI as well as NRIs are kept outside from the scope of investors.
2. Value of Bond
The value of Bond?will be fixed in Indian Rupees on the basis of the previous week?s (Monday?Friday) simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Ltd. (IBJA).
The tenure of the Bond will be for a period of 8 years with exit option from 5th year to be exercised on the interest payment dates.
The bonds will be issued in various denominations such as 2 grams, 5 grams, 7 grams, 10 grams with a minimum limit of 2 grams of gold and maximum limit of 500 grams of Gold per person per year.?A self-declaration to this effect will be obtained.?In case of joint holding, the investment limit of 500 grams will be applied to the first applicant only.
5. Issue of Certificates
Reserve Bank of India will issue the certificates on behalf of the Government. Further, post-offices, Banks and NBFCs will act as an intermediary and would collect and redeem Sovereign Gold Bonds on behalf of Government.
The Bonds are eligible for conversion in to demat form.
6. KYC Norms
Know-your-customer (KYC) norms will be the same as that for purchase of physical gold. KYC documents such as?Voter ID, Aadhaar card/PAN or TAN /Passport will be required.
7. Interest Rates
Sovereign Gold Bonds will offer interest at the rate of at a fixed rate of 2.75 per cent per annum?payable semi-annually on the initial value of investment.
Sovereign Gold Bonds will be listed in commodity exchanges/NDS-OM and can easily be bought and sold before the maturity.
The certificates can be used as a collateral security for taking loans.?The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time.
The Amount payable (principal + interest) at the time of Maturity of the Sovereign Gold Bonds will be in Indian Rupees based on previous week?s (Monday-Friday) simple average of closing price of gold of 999 purity published by IBJA.
11. Taxation of Sovereign Gold Bonds
The tax treatment of Sovereign Gold Bonds is similar to physical gold or gold exchange traded fund (gold ETFs). If the holding term exceeds 3 years than you will have to pay tax on capital gain at 20% with indexation but if your holding period is below 3 years than the capital gains will be short term and taxed as per you tax slab.
The interest on Gold Bonds shall be taxable annually as per the provision of Income Tax Act, 1961 (43 of 1961) under the head ?Income from Other Sources?.
Commission for distribution at the rate of 1% of subscription amount?is to be paid.
What are the Benefits of Sovereign Gold Bonds?
- Quality concerns always remains while buying physical gold from jewelers but Sovereign Gold Bonds will do away with this hurdle.
- Sovereign Gold Bonds also scores above Gold ETFs as there is no interest offered in Gold ETFs.
- Wealth Tax is levied on Physical Gold while Sovereign Gold Bonds does not attract Wealth Tax.
Sovereign Gold Bonds vs. Gold Monetization Scheme
Both Sovereign Gold Bond and Gold Monetization Scheme aim to curb the import of Gold via different routes. Under SGBs the investor would get the certificate of amount he has invested to in gold while in GMS the holder of gold would get the certificate of the amount of gold he has deposited.
Though GMS is made completely tax-free, tax treatment of SGBs are yet to be made clear by the Government.