New issue of sovereign gold bond scheme 2023-24 announced; all you need to know

The government of India has announced the issuance of two tranches of Sovereign Gold Bonds (SGBs) during the first half of the current financial year. These bonds provide an alternative investment option to individuals who want to invest in gold.

SGBs are a way for people to invest in gold without physically owning it. It's like buying gold electronically. When you buy an SGB, you are essentially lending money to the government, and in return, you receive a bond that represents a certain amount of gold. At the end of the maturity period, you get your money back based on the current price of gold.

In this article, we will explore the key features and important details about SGBs.

When will the SGBs be available?

As per the Reserve Bank of India (RBI), the government has planned to release two sets of sovereign gold bonds (SGBs) in the first half of the ongoing financial year. The subscription period for the 2023-24 Series I will be from June 19-23, 2023, whereas for Series II, it will be held from September 11-15, 2023. The issuance date for Series I is June 27, and for Series II, it is September 20.

Who is eligible to purchase them?

SGBs are available for sale to resident individuals, hindu undivided families (HUFs), trusts, universities, and charitable institutions. The bonds are denominated in multiples of grams of gold, with the basic unit being one gram.

What is the tenor and investment limit of SGBs?

The maturity period of SGBs is eight years, with an option for premature redemption after the fifth year on the interest payment date. The minimum permissible investment is one gram of gold. There is a maximum limit of subscription, which is set at 4 kg for individuals, 4 kg for HUFs, and 20 kg for trusts and similar entities per fiscal year (April-March).

What is the process for determining the issue price?

The issue price of the bonds is determined in Indian rupees based on the simple average of the closing price of gold of 999 purity, as published by the India Bullion and Jewellers Association Limited (IBJA), for the last three working days of the week preceding the subscription period. Investors who subscribe online and pay through digital mode enjoy a discount of ₹50 per gram on the issue price.

How are they sold?

SGBs are sold through Scheduled Commercial banks, Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, and recognized stock exchanges like the National Stock Exchange of India Limited and Bombay Stock Exchange Limited.

What interest rate do investors receive on SGBs?

Investors receive a fixed interest rate of 2.50% per annum on the nominal value of the bond. The interest is payable semi-annually. The redemption price is determined in Indian rupees and is based on the simple average of the closing price of gold of 999 purity over the previous three working days, as published by IBJA Ltd.

What is the procedure for the subscription of SGBs?

Interested individuals can apply for SGBs at any receiving office by submitting Form 'A' or any other specified form. The application must include the required documentation and information, including the PAN number.

Once the application is complete and meets all the conditions, the receiving office issues an acknowledgment receipt in Form 'B.' The KYC process for SGBs is the same as for purchasing physical gold, requiring documents such as voter ID, aadhaar card/PAN or TAN/passport, and other KYC documents.

How are they issued and transferred?

SGBs are issued as Government of India stock under the Government Securities Act, 2006. Investors receive a certificate of holding for their bonds, and the bonds are eligible for conversion into demat form. Transfer of SGBs can be done through the execution of an Instrument of Transfer as per the specified format.

What is the tax treatment and other benefits associated with SGBs?

The interest earned on SGBs is taxable as per the provisions of the Income Tax Act, 1961. However, the capital gains tax on the redemption of SGBs is exempted for individuals.

Long-term capital gains arising from the transfer of these bonds are eligible for indexation benefits. SGBs can also be used as collateral for loans, with the loan-to-value (LTV) ratio being as applicable to any ordinary gold loan regulated by the Reserve Bank of India.

SGBs provide investors with an opportunity to invest in gold in a convenient and secure manner. With their fixed interest rate, tax benefits, and loan collateral option, SGBs offer a unique investment avenue for individuals.