Gold bonds cashed in early are now taxed. What October's two RBI windows show

The Finance Act, 2026 received the President's assent on 30 March 2026. Section 43 rewrites the sovereign gold bond (SGB) exemption in section 70(1)(x) of the Income-tax Act, 2025. The exemption now covers redemption of an SGB only "if held by an individual from the date of original issue till maturity". The change applies from 1 April 2026, for tax year 2026-27 onwards.

Before this, redemption of an SGB by any individual was exempt. That covered two groups who are now outside it: people who bought their bonds on the stock exchange, and original subscribers who redeem early through RBI.

The two routes that lost the exemption

Early redemption. An SGB runs for eight years. RBI allows redemption after the fifth year, on the dates interest is paid. The budget memorandum says the exemption now needs the bond to be held "continuously until redemption on maturity". An original subscriber who redeems in year six or seven is taxed on the gain.

Bonds bought on the exchange. SGBs held in demat trade on NSE and BSE. A buyer in the market did not subscribe at original issue, so redemption at maturity is now taxable as well.

Selling on the exchange was never covered by the exemption, which applied only to redemption. That has not changed.

What October's windows paid

RBI opened two early redemption windows this month.

Each unit is one gram of gold. The issue prices are from RBI's 2019 and 2020 releases; investors who applied offline paid ₹50 more, ₹3,788 and ₹5,051. The redemption prices are from RBI's October 2026 releases for Series V and Series VII, each the average IBJA closing price for 999 gold over the three business days before the window.

For an online subscriber, Series V returned 293.9% on the issue price and Series VII 192.2%, before the 2.5% a year interest.

The tax on that gain

An SGB redeemed after five years is a long-term capital asset. Section 197 of the Income-tax Act, 2025 taxes long-term gains at 12.5%, with no indexation. The Finance Act caps surcharge on these gains at 15%, and adds 4% cess.

Illustration. An original online subscriber to SGB 2019-20 Series V redeemed 100 units at the 15 October window, with total income above ₹1 crore.

At 500 units, worth ₹73.6 lakh at the October price, the tax is ₹8.21 lakh. At 1,000 units it is ₹16.43 lakh. Under the rule before April, all three would have been tax-free. At the 14.95% rate, the tax takes 11.2% of what RBI paid out on Series V and 9.8% on Series VII.

For a bond bought on the exchange, the gain is the redemption price minus what you paid in the market, so the tax depends on your purchase price. Interest has always been taxable at your slab rate and still is.

What the new wording leaves open

• Inherited bonds. The law says "held by an individual from the date of original issue". Neither the Act nor the memorandum says whether an heir who receives bonds from the original subscriber counts.
• Gifts and joint holdings. The same question arises for bonds gifted between family members, and for joint holdings where the first holder changes.
• HUFs and trusts. Both can hold SGBs, but the exemption has always been for individuals only, so they were taxed on redemption before and still are.
• RBI's own page. RBI's frequently asked questions on SGBs, read on 21 October 2026, still say capital gains on redemption are exempt for individuals and refer to the 1961 Act. The Finance Act is the law that applies.

Until the CBDT clarifies inherited and gifted bonds, those cases are a question for your CA.

Questions

Are sovereign gold bonds still tax-free on redemption?

Only if an individual subscribed at original issue and held the bond until maturity. Section 43 of the Finance Act, 2026 sets this condition from 1 April 2026.

Is early redemption of an SGB through RBI taxable now?

Yes. From tax year 2026-27, redemption before maturity is outside the exemption, and the gain is a long-term capital gain taxed at 12.5% plus surcharge and cess.

Are SGBs bought on NSE or BSE tax-free at maturity?

No. A buyer on the exchange did not subscribe at original issue, so the gain on redemption is taxed from 1 April 2026.

What is the tax rate on a taxable SGB gain?

12.5% under section 197 of the Income-tax Act, 2025, plus surcharge capped at 15% and 4% cess. That is 13% to 14.95% of the gain, depending on total income.

What did RBI pay for early redemption of SGB 2019-20 Series V?

₹14,725 per unit on 15 October 2026, against an online issue price of ₹3,738 in October 2019.

Are inherited SGBs exempt at maturity?

The law does not say. The new wording requires the bond to be held by an individual from original issue, and neither the Finance Act nor the budget memorandum addresses heirs.

Sources

1. Finance Act, 2026 (No. 4 of 2026), section 43, Gazette of India (30 Mar 2026)
2. Memorandum explaining the Finance Bill, 2026, Exemption for Sovereign Gold Bond (2026)
3. Income-tax Act, 2025, section 197, tax on long-term capital gains
4. RBI, early redemption price for SGB 2019-20 Series V (Oct 2026)
5. RBI, early redemption price for SGB 2020-21 Series VII (Oct 2026)
6. RBI, SGB 2019-20 Series V issue price (4 Oct 2019)
7. RBI, SGB 2020-21 Series VII issue price (9 Oct 2020)
8. RBI, Sovereign Gold Bond frequently asked questions

Compound is analysis, not investment advice. Reva Money is not a SEBI-registered investment adviser.