SGB 2020-21 Series Sees Early Redemption Option with Promising 230% Return

Reserve Bank of India Opens Early Redemption Window for Sovereign Gold Bond Tranche

The Reserve Bank of India (RBI) has announced the opening of the early redemption window for the April 2020 Sovereign Gold Bond (SGB) tranche 2020-21 Series-I. Eligible investors can exercise their exit option beginning April 28, with the payout set at Rs 15,124 a unit.

This redemption price translates to an absolute return of 230 percent. The price is based on the simple average of IBJA gold prices over April 23, 24, and 27. Investors who put in Rs 1 lakh in April 2020 would get nearly Rs 3.30 lakh on exit.

The SGB 2020-21 Series I was issued at Rs 4,589 a gram for online investors, which included a Rs 50 discount. For offline subscribers, the issue price was slightly higher at Rs 4,639 a gram.

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The SGB redemption price is based on the simple average of 999 purity gold closing prices for the three business days preceding the redemption date, as reported by the India Bullion and Jewellers Association (IBJA).

Tax Implications for Sovereign Gold Bonds

From April 1, tax rules for SGBs have been revised, restricting tax benefits. Even primary issue subscribers have to pay capital gains tax on premature redemption. The capital gains tax exemption at maturity is now restricted to original subscribers who hold their bonds for the full eight-year tenure.

| Tax Implications for SGB Subscribers | | --- | --- | | Primary issue subscribers | Capital gains tax on premature redemption | | Original subscribers | Capital gains tax exemption at maturity (8-year tenure) | | Secondary market buyers | No capital gains tax exemption at maturity |

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Those who bought SGBs from the secondary market will no longer qualify for tax-free redemption, even if they hold the bonds till maturity.