Sovereign Gold Bonds Scheme 2016-17 - All You Need to Know

All you Need to Know About Sovereign Gold Bond Scheme

PAN Deactivation by I-T Department
February 17, 2017
How to Make Your ITR-V Rejection-Proof
March 2, 2017
Show all

All you Need to Know About Sovereign Gold Bond Scheme

Sovereign Gold Bond Scheme

There is good news for all the gold lovers out there. The government has issued the next tranche of Sovereign Gold Bonds 2016-17 Series IV scheme. The subscription window which opened today will remain open till March 3, 2017. Anyone who passes the eligibility criteria can subscribe either in demat or paper form. For those of you who are interested in investing in this opportunity, H&R Block brings you this articles which cover everything you need to know about the scheme.

Buying SGB vs Buying Physical Gold

Investment in SGB is definitely better than investment in physical gold. If you invest in SGB, you will benefit from the following advantages over the other option:

  • The amount of gold in which you invest is protected
  • You will be free from risks (of theft/loss) and costs of holding (locker rent) of gold
  • Freedom from costs like making charges (5-25% of the gold value) and purity which are linked to physical holding of gold in jewellery form
  • Surety of getting full market value of gold at the time of redemption
  • Additional periodical interest of up to 2.75% other than maturity money
  • No risk of losing script
  • Bonds issued can be used as collaterals for loans and traded on exchanges
  • High Liquidity as compared to physical gold

Eligibility criteria

Investment in SGBS (Sovereign Gold Bond Scheme) is open for resident individuals, HUFS, trust universities, charitable institutions, etc. Joint holding of the bond is also allowed. As a guardian or parent, you can also invest in the name of a child or minor.

Investment limit

The government has also set a minimum & a maximum investment limit for this scheme. Since these bonds are issued in denominations of 1 gram of gold, one can invest in as low as 1 gram to as high as 500 grams of gold in a year. If the bond is held jointly, the limit will be applicable to first applicant. You can also buy 500 grams worth of gold in the name of each of your family members as long as they satisfy the eligibility conditions.

Procedure to invest in SGB

You can buy bonds from authorised parties like scheduled commercial banks (not RRBs), SHCIL offices & designated Post Offices.

  • To apply, you can visit the office of authorised parties or you can also go to the websites of scheduled commercial banks to apply online.
  • You need to satisfy eligibility conditions, fill application form & nomination form, provide valid identification proof, and deposit application fees timely.
  • The KYC norms which are applicable for purchase of physical gold will be applicable here also. You can use Aadhaar card/PAN card/TAN/Passport/Voter ID card as identity proof. Authorised issuing parties will be responsible for doing KYC. You will not require a separate KYC if you are already a customer of bank issuing SGB.
  • A variety of payment options are available for you. You can make payment by cash/cheque/DD/EFT. However, cash payments are limited to Rs. 20,000.
  • Post this, you will be issued SGB as well as a Certificate of Holding. You can get this certificate from the issuing parties or from RBI on email.

Rate of interest & maturity amount

The interest that you will get on these bonds is 2.75% p. a. which will be credited six monthly into your bank accounts. At the time of redemption, the money that you get will be equal to the prevailing market value of grams of gold originally invested by you.

Premature Redemption

There is provision for premature encashment of the bond. The maturity period of the bond is 8 years, but you can redeem the bond prematurely after fifth year. The bonds held in demat are tradable from a date to be notified by RBI. It can also be transferred to any other eligible investor.

Procedure for Redemption

As an investor, you will be informed one month in advance about the ensuing maturity of the bond. The calculation of exit amount or price will be based on simple average of previous week’s (Monday-Friday) closing gold price for 999 purity published by the IBJA. On the date of maturity, the maturity proceeds will be transferred to the bank account as per the details in the record. In case, there are any changes you gave at the time of purchase of bond, you should immediately inform the bank/SHCIL/PO where the account was opened.

Tax Implications

Interest income is taxable as the income from other sources under the provisions of Income Tax Act, 1961. However, no TDS provisions are applicable on it. Redeemed amount will be exempt from capital Gains Tax in the hands of individuals. Any person (other than individuals) who makes long term capital gains on transfer of bond will get indexation benefits.

So, hurry up and invest before the window closes. If you still have any doubts, you can visit our tax forum and ask questions. Our team of experts will answer your queries promptly.

Niteesh Singh
Niteesh Singh
Niteesh works as a Tax Researcher at H&R Block India. He makes taxes easy to understand for people. He creates content for the website, marketing activities and social media. He carries experience in creating a wide variety of content like blogs, press releases, research papers, etc.

Leave a Reply

Your email address will not be published. Required fields are marked *