- Finance Ministry's Budget removes capital gains exemption on secondary market SGBs from April 1, 2026
- Only original subscribers holding SGBs to maturity retain full tax exemption on capital gains
- SGBs previously offered 2.5% interest and tax-free capital gains at maturity for all buyers
Finance Minister Nirmala Sitharaman's Budget has triggered fresh anxiety among Sovereign Gold Bond investors after a proposed rule change that removes the capital gains exemption on SGBs purchased from the secondary market.
The shift means only original subscribers who hold their SGBs to maturity will keep the full tax exemption, while all second hand buyers will lose it from April 1, 2026.
For years, SGBs have been one of India's most tax efficient investment products. Investors received 2.5 percent interest each year and enjoyed complete exemption on capital gains at maturity, regardless of whether they bought the bond from RBI at issue or picked it up later on the stock exchange.
The Budget now proposes a sharper interpretation. The capital gains exemption at maturity will apply only when the investor bought the SGB in the primary issue directly from RBI and held that same bond till redemption. If an investor bought the SGB from the secondary market, the exemption will not apply. When they redeem at maturity after April 1, 2026, the price difference will be taxed as capital gains.
In simple terms, the government intends to ring fence the tax benefit around original issuance. The aim is to remove arbitrage created by investors who bought older SGB series at discounts and still claimed tax free redemption.
The government believes this move restores fairness between primary subscribers and secondary market traders.
The announcement sparked immediate pushback from market watchers. Deepak Shenoy, CEO of Capitalmind, flagged the change as a major negative for buyers of second hand SGBs who had counted on tax free returns at maturity.
He said these investors will now face tax on their gains just like any other capital asset, wiping out the one advantage that made SGBs a superior alternative to physical gold or ETFs.
Operationally, nothing changes for original subscribers. If an investor bought directly through RBI when the tranche was issued and holds the SGB till maturity, the redemption remains fully tax exempt. Early redemption through RBI windows also retains the existing rules.
However, secondary purchases will now be treated like regular capital assets. Short term gains will be taxed at slab rates if held for less than the threshold period, while long term gains will attract the applicable LTCG rate without the special exemption that SGBs historically offered.
The new rule kicks in on April 1, 2026 for FY 2026 to 27 and beyond. Investors who bought SGBs on the exchange and plan to hold till maturity need to factor in this tax hit.
