SGB New Tax Rules 2026: Why Your “Exchange-Bought” Gold Bonds Just Lost

The 2026 Union Budget brought a significant shakeup for investors in Sovereign Gold Bonds (SGBs), especially those buying from the secondary market (through platforms like Zerodha, Upstox, or other stock exchanges). The tax exemption that was once available on SGBs purchased from the secondary market at maturity is now no longer applicable.

This change is a major pain point for investors who bought Sovereign Gold Bonds on the stock exchange, expecting tax-free returns. Only “Original Subscribers” (those who bought directly from the government during the issuance phase) are eligible for the tax benefits moving forward.

What’s Changing in 2026?

Previously, the Sovereign Gold Bond scheme offered a tax exemption on capital gains at maturity, whether purchased from the primary market (directly from the government) or the secondary market (via the stock exchanges like Zerodha, Upstox, etc.). However, as per the 2026 Budget, this tax-free benefit is now available only for the original subscribers of the SGBs.

What Does This Mean for You?

If you are an investor who has bought Sovereign Gold Bonds from the secondary market, you will now be subject to capital gains tax upon maturity. Here’s how this affects you:

Long-Term Capital Gains (LTCG) Tax:
- Original Subscribers (those who bought SGBs directly from the government) will continue to enjoy the tax exemption on the capital gains at maturity.
- Secondary Market Buyers (those who bought through exchanges like Zerodha or Upstox) will now be subject to Long-Term Capital Gains Tax (LTCG) of 12.5% if they hold the bonds for more than 3 years before maturity.

This change is significant because SGBs have been considered a tax-efficient investment vehicle for many years, primarily because of the tax-free maturity benefit.

Why This Tax Change?

The rationale behind this tax change is to curb any tax loopholes and ensure that only those who invest directly in the Sovereign Gold Bond scheme from the government benefit from the special tax treatment. The government likely introduced this measure to:

Ensure Fairness: By limiting the tax benefit to original subscribers, the government can ensure that those who took part in the scheme at the time of issuance get the full benefit of the tax exemptions.
Close Tax Loopholes: Secondary market buying of SGBs could be seen as an avenue for investors to bypass tax rules. This adjustment is aimed at closing this potential loophole.

Key Details About the New Tax Structure

Here’s what you need to know about the new tax framework for SGBs purchased on the secondary market:

LTCG on Secondary Market Purchases: For SGBs purchased through Zerodha, Upstox, or other exchanges, the LTCG tax will apply at a rate of 12.5% on any gains made from holding the bonds for over 3 years.
Exemption for Original Subscribers: Only original subscribers (those who bought SGBs directly from the government during the initial issuance) will be exempt from tax on capital gains when the bonds mature.
Short-Term Capital Gains (STCG): If you sell SGBs before 3 years, you will be subject to short-term capital gains tax (STCG), which will be taxed according to your income tax slab.
Tax on Interest: The interest income earned on SGBs is always taxable (except for original subscribers), and will be taxed according to your applicable tax bracket.
Impact on New Investors: If you are buying SGBs in the secondary market now or in the future, you should consider the impact of the 12.5% tax on your returns, especially if you were banking on the earlier tax-free maturity.

Example of How the New Tax Affects Returns

Let’s assume you bought 1 gram of SGB at ₹5,000 in the secondary market. After 5 years, the price of gold has increased, and your bond is now worth ₹10,000. Under the new rules, if you are a secondary market investor, you will have to pay 12.5% LTCG tax on the capital gain (₹5,000), which would amount to ₹625 in tax.

Scenario for Original Subscribers:

If you were an original subscriber who bought the same bond directly from the government, you would not have to pay any tax on the ₹5,000 gain at maturity. You get the full amount—₹10,000—without deductions.

How Can You Mitigate the Impact of Tax?

Given the new tax rules, here are some ways you can mitigate the impact of the tax on your SGB investments:

Consider Holding Longer: Although SGBs now incur LTCG tax at 12.5%, it might still be worth holding them for 5-7 years to benefit from the long-term price appreciation of gold, even after accounting for the tax.
Diversify Your Gold Investments: SGBs are still a good option for long-term gold exposure, but you might want to diversify with gold ETFs, gold mutual funds, or even physical gold if tax treatment is a concern.
Tax Planning: Always consider your overall tax liabilities before investing. If you’re in a lower tax bracket or expect the value of gold to appreciate significantly, the impact of the 12.5% tax may still be outweighed by the potential returns.
Consult a Tax Professional: If you are unsure about how this change will affect your portfolio, it’s always a good idea to consult with a financial advisor or tax professional for personalized advice.

Upcoming Revisions and Recommendations

The government might continue to revise the SGB tax policy in future budgets, depending on market reactions and investor feedback. It’s important to keep track of such changes if you are an active investor in gold bonds. If you are considering purchasing SGBs in the secondary market, do so after fully understanding the implications of the tax changes.

FAQs on the SGB Tax Changes

Q1: What are Sovereign Gold Bonds (SGBs)?
A1: Sovereign Gold Bonds are government securities that offer investors a way to invest in gold without holding physical gold. They come with the dual benefit of capital appreciation based on gold prices and fixed annual interest (currently 2.5% per annum).

Q2: What changed in the tax treatment of SGBs post-Budget 2026?
A2: Post-Budget 2026, only original subscribers (those who bought SGBs directly from the government during the initial issue) are eligible for the tax-free benefit on capital gains at maturity. Secondary market buyers will now face a 12.5% LTCG tax on gains if held for over 3 years.

Q3: Who qualifies as an “original subscriber” to SGBs?
A3: An original subscriber is someone who purchased Sovereign Gold Bonds directly from the government during its issuance period (typically in a tranche-based process).

Q4: How is the LTCG tax on SGBs calculated?
A4: The LTCG tax is applied on the capital gains (profit from the sale) made when you sell or redeem SGBs. The rate for secondary market buyers is 12.5%, provided the bonds are held for more than 3 years.

Q5: Will I be taxed on the interest earned from SGBs?
A5: Yes, the interest income from Sovereign Gold Bonds is taxable according to your income tax slab.

Q6: How do I calculate my SGB tax liability?
A6: You can calculate your tax liability by subtracting the initial purchase price from the sale price or maturity value of the bond to determine your capital gain. Then, apply the relevant tax rate (12.5% LTCG for secondary buyers) to calculate your tax.

Q7: Can I avoid tax by holding SGBs longer?
A7: While holding SGBs longer will delay the tax impact, it won’t eliminate the LTCG tax. The longer holding period will, however, allow you to benefit from gold price appreciation.

Conclusion

The tax change on Sovereign Gold Bonds (SGBs) in Budget 2026 marks a significant shift for investors, especially those buying SGBs from the secondary market. With the new 12.5% LTCG tax, secondary market investors will need to adjust their strategies to account for these tax implications.

As a result, it’s important to carefully evaluate whether SGBs, as an investment option, still align with your long-term financial goals, given the changed tax landscape.

Stay informed, plan your investments carefully, and consult a professional for personalized advice on managing your gold investments in the post-budget era.

For further details on Sovereign Gold Bonds, their issuance process, and tax rules, visit the official SGB website.