Budget 2026: Will your Sovereign Gold Bond gains face higher tax?

There has been considerable interest from investors in the 2026 Budget (which Finance Minister Nirmala Sitharaman will present in early February), especially in Sovereign Gold Bonds (SGB), regarding the most likely question: Will your sovereign gold bond gainsbe taxed? The answer isn't straightforward since it depends mostly on how and when you acquired the bonds.

With Budget 2026, we can see the first SGB tax rules change as the long-standing capital gains tax exemption on maturity has been removed. Although it will still be attractive for purchasers, this change will reduce tax benefits for secondary market purchasers. We will explain these changes so that you can assess how they will affect your investment.

What Are Sovereign Gold Bonds?

Sovereign gold bonds are government securities that the Reserve Bank of India (RBI) issues on behalf of the Government of India. Since 2015, SGB has been serving as an investment alternative to physical gold. You will be able to invest in gold and make gains from increasing gold prices without worrying about where to store the gold, storage costs, or how to purify the gold.

SGBs include:

- They are denominated in grams of gold, with a minimum of 1 gram and a maximum of 4 kg per investor each financial year. 

- They have a fixed interest rate of 2.5% per annum, with interest payments in the 2nd and 4th quarters each year. 

- They have a maturity of 8 years, but there is an option to exit after the 5th year. 

- They are tradable on the stock exchange, providing liquidity in the secondary market.

- They are issued in tranches with prices tied to the average closing prices of gold with 999 purity.

These bonds are popular because they combine steady interest payments and gold-price appreciation, along with a government guarantee. Unlike physical gold, there are no storage risks or theft.

 

 

Tax rules on the Sovereign Gold Bond before Budget 2026

The sovereign gold bond tax rules were favourable to investors prior to the Budget 2026 gold bond revisions.

- Interest income: The 2.5% interest, payable each year, is taxable, but the tax is levied on the income slab of the investor and is classified as income from other sources.

- Capital gains on maturity: If the bond is held until maturity (8 years), any gains (difference between the issue and maturity price) are exempt from tax, and this applies irrespective of whether the investor subscribed to the bond issued originally or purchased it from the secondary market.

- Capital Gains on Selling Prematurely: Selling on the exchanges after 24 months means the gain qualifies as long-term capital gains (LTCG) and is taxed at 12.5% (no indexation benefits after post-2024 changes). Short-term gains (under 24 months) are taxed at slab rates.

- No tax on Transfer: No capital gains tax is due when it is transferred as a gift.

This made SGBs one of the most tax-efficient options for gold investments, especially for long-term investors.

Key Changes Introduced in the Budget 2026

The Budget 2026 suggested modification of Section 47(vi) of the Income Tax Act, effective April 1, 2026. The most important change is that the capital gains tax exemption on redemption is limited to bonds that are subscribed at the original issue by the RBI and held to maturity.

In simpler words:

- Original subscribers (who applied during the RBI issuance windows) and who hold to maturity will continue to enjoy tax-free sovereign gold bond gains.

- Secondary market buyers (who bought on the stock exchanges) will incur LTCG tax at 12.5% on the gains made at maturity or on premature redemption (if applicable).

- This timeframe is applicable to all issuances of the Sovereign Gold Bond Programme (SGB). This is a prospective change affecting all redemptions on and after April 1st, 2026.

This changed because the original intent behind issuing SGBs was to sell them as savings instruments. This is likely a sign from the government saying they want to prevent what they view as misuse of SGBs, perhaps because cash prices for gold have greatly increased during this unwarranted premium on the secondary market.

None of these changes will affect the interest payments (2.5% is the same and remains taxable as the same).

Impact on the Profits Gained through Sovereign Gold Bonds

The changes that will have the most impact on them will be secondary market investors. Take the following hypothetical:

Let’s say that at the end of the maturity period, you buy SGBs at maturity for 10 lac rupees and 5,000 rupees per gram of gold. If the price of gold at maturity is 8000 rupees per gram, you will have a gain of 6,000 rupees per gram for 2 kilograms. This gain will amount to a total of 1.2 million rupees.

- Pre Budget 2026: You will gain 12 lac rupees, and that will be tax-free.

- Post Budget 2026: There will be a tax on the Long Term Capital Gain (LTCG) of 12.5%, amounting to 1.5 lac rupees.

For those original subscribers (pre-Budget 2026) who will be holding the bonds until the end of the maturity period, they will still have the tax-exempt gain.

The secondary market prices have already fallen due to more tax liability and some of the bonds have already fallen more than 10% after the announcement of these changes.

 

 

Who Is Impacted? First vs Second Buyers

- First buyers: Not impacted if they hold till maturity. Get full tax exemption, earning interest at 2.5% (interest is taxed at the slab).

- Second buyers: Get hit by LTCG tax on gains at maturity. If they sell before maturity (after 5 years), they will also incur tax. With tax benefits reducing, liquidity could get worse.

- Traders/speculators: Almost no impact, as they tend to sell before maturity and incur tax regardless.

The effective returns for investors who purchased at a premium during the secondary market will also likely decrease.

Post-Budget 2026 Options for Investing in Gold

With restrictions on SGB tax rules, you can consider the following:

- Gold ETFs / Mutual Funds: Provide liquidity and less hassle, but you pay tax on gains (LTCG 12.5% after 24 months).

- Physical gold: incur making charges and have to consider storage; LTCG at 12.5% on pre-2024 purchases with indexation.

- Gold futures: This is for traders and it’s high risk.

- Digital gold: This is easy to use, but no sovereign backing.

The SGB regulatory environment has also improved for original subscribers since tax exemption, coupled with interest earnings, is retained.

 

 

Final Thoughts and Investor Advice

Budget 2026 modifications on sovereign gold bonds tax don’t remove real appeal. For long-term investors, subscribers during RBI issuances, and investors holding SGBs upon maturity, SGBs, as a gold investment vehicle, with tax-free gains and a steady interest, remain one of the best options.

On the other hand, secondary market buyers need to adjust their expectations. If you purchased SGBs on exchanges, and the maturity period is post-April 2026, you need to plan the LTCG liability strategically, given the time of maturity.

Always approach a tax consultant for laid out tailored advice as rules change. Gold is a hedge against inflation and uncertainty, and the Budget 2026 gold bond changes simply allow buyers to engage with the programme as it was originally intended.

Keep your gold safe and steady and let your investing be gold-wise.

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.