India’s Union Budget 2026 27 brought a significant shift in how Sovereign Gold Bonds (SGBs) are taxed, especially concerning capital gains exemptions that investors have long enjoyed. While SGBs remain tax-efficient for certain holders, the changes introduced from April 1, 2026 are expected to reshape investor behaviour and secondary market dynamics.
Under the previous regime, gains earned on SGBs held to maturity were completely exempt from capital gains tax, regardless of whether the bond was bought at the original issue or later on the secondary market. This perk made SGBs especially appealing compared with physical gold or gold ETFs, often drawing premiums in the exchange-traded market. However, Budget 2026 has narrowed this benefit significantly.
According to the revised tax framework approved in Parliament, the capital gains tax exemption will now apply only if an individual investor subscribes to an SGB at its original issue and holds it continuously until maturity. Bonds acquired through the secondary market or those sold and re-purchased will no longer enjoy this tax break, even if held until maturity.
For many retail investors who were buying SGBs on stock exchanges to take advantage of the tax-free exit at maturity, this alters the investment calculus. Experts warn the change could erode secondary market premiums and reduce liquidity, as the tax-free edge that fuelled demand for these instruments outside original issuances is removed. Market veteran Deepak Shenoy described this tweak as “very negative” for secondary market investors.
That said, the change doesn’t eliminate the benefits of SGBs entirely. Investors who bought at the time of initial issue and hold till redemption will continue to enjoy zero capital gains tax on the profit earned at maturity, just as before. The annual 2.5 % interest paid on the bonds also continues to be taxable as income under existing rules.
In practical terms, if a bond bought on the secondary market yields a substantial price gain over its tenure, those gains will now be taxed as either long-term or short-term capital gains depending on holding period and individual income tax slab. Planning ahead for these implications will be crucial for investors assessing the true returns from SGB investments in FY 2026–27 and beyond.
In essence, the latest Budget reinforces the original spirit of SGBs as a long-term, sovereign-backed savings instrument rather than a tax-free trading vehicle a subtle but important shift for gold investors across India.
