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Sovereign Gold Bond Scheme 2019-20 (Series VII): Should you subscribe? Here's all you need to know

Mon Dec 02 2019

 

The government has announced the next tranche of the sovereign gold bond (SGB Scheme 2019-20- Series VII) today (December 2, 2019). This will be opened for the period December 2, 2019, to December 6, 2019. The issue price of the bond during this subscription period will be Rs 3,795 per gram with settlement date December 10, 2019, as also published by the Reserve Bank of India (RBI) in their press release dated November 29, 2019.

It may be noted that the government in consultation with the RBI has decided to allow a discount of Rs 50 per gram on the issue price for those investors who apply online and the payment is made through digital mode. Therefore, after the discount, the issue price of the gold bond will be Rs 3,745 per gram.

Here's all you need to know:

1. All the individuals, trusts, HUFs, charitable institutions, universities or persons resident in India, are eligible for the subscription. The interest rate on these bonds is 2.50 per cent (fixed rate) per annum on the amount of the initial investment. However, the interest is paid semi-annually to the bank account of the investor and the last interest payable on maturity along with the principal.

2. Apart from this, gold bonds can be used as collateral for loans from banks, financial institutions and non-banking financial companies (NBFCs). The interest received from these bonds is taxable as per the provisions of the Income Tax Act, 1961. These are exempt from capital gains arising to any person on the transfer of bonds.

SGB

 

3. Investors can apply for a gold bond through banks (excluding RRBs, Small Finance Banks and Payment Banks), Stocks Holding Corporation of India (SHCIL), designated post offices and stock exchange, according to the RBI.

4. The bonds will be issued in denominations of one gram of gold or multiples thereof, provided that the minimum limit of subscription is of 1 gram and maximum limit per financial year is of 4 kg for individuals, HUFs and 20 kg for trusts and similar entities as notified by the government.

What experts have to say:

"Sovereign Gold Bonds (SGBs) come with many advantages such as there is no expense ratio involved in holding bonds, the prices are directly linked to the price of highest purity gold (24 carats), they are tradeable on exchanges with low volumes resulting in discounted price to physical gold, regular interest income offered to investors is 2.5 per cent annually payable half-yearly, capital gains on bonds are fully tax-exempt if held till maturity of 8 years, bonds can be used as collateral for taking loans," says Ajay Kedia, Director Kedia Advisory.

"Though the interest received on gold bonds is taxable in the hands of the investors, any profit earned on redemption of the bonds will be exempt from capital gains tax. Please note that the exemption from capital gains is only available at the time of redemption and not on the profits earned on sale on the platform of the stock exchange. However, the benefits of indexation are available in case of sale before redemption for computing the capital gains. The investments in gold through these bonds earn you interest and make profits at the time or redemption tax-free. You should invest in the bonds. Even in emergency situations, one can get a loan against these bonds. So to that extent, the bonds are more liquid than several other investment products,"  says Balwant Jain, tax and investment expert.

Source: https://www.timesnownews.com