Taxation of Sovereign Gold Bond

By | May 23, 2016
(Last Updated On: May 23, 2016)

Taxation of Sovereign Gold Bond

Section 47(viic) and Section 48 of Income Tax Act 1961

Taxation of Sovereign Gold Bond

Salient Features of Taxation of Sovereign Gold Bond

  • Section 47(viic) has been inserted with effect from assessment year 2017-18 to provide that any transfer of Sovereign Gold Bond (SGB) issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, shall not be regarded as transfer for the purposes of section 47 and will be exempt from taxation if,

a ) The transfer is by way of be redemption at maturity

b) The transfer is by an individual

  • The exemption is available only to an individual and not to other assessees such as HUFs, trusts, etc.
  • If the transferee holds the bonds till redemption then only he would be eligible for the exemption but  transfer before redemption by the original subscriber or transferee of bonds is not exempt.
  • The capital gains arising upon transfer of Sovereign Gold Bond shall be computed after considering the indexed cost of acquisition of such bonds. [clause (b) of third proviso to section 48]
    • Suppose the Sovereign Gold Bond are purchased in 2016-17 for Rs. 3,00,000 and sold in 2020-21 for Rs. 3,50,000. If the indexed cost of acquisition is Rs. 3,30,000, then the long term capital gains shall be Rs. 20,000 (Rs. 3,50,000 less Rs. 3,30,000).
  • If due to  indexation, a transfer of Sovereign Gold Bond result in a long term loss,  Such loss shall be allowed to be set off and carried forward in accordance with the provisions of the Act, as in the case of other long term losses.
  • the benefit of indexation will be available to both, the original subscriber and a subsequent transferee of Sovereign Gold Bond
  • No exemption is provided to the Interest on Sovereign Gold Bond.

Taxation of Sovereign Gold Bond:- Budget speech on Union Budget 2016-2017 of Shri Arun Jaitley, Minister of Finance, dated 29-2-2016

“ANNEXURE TO PART-B OF THE BUDGET SPEECH –DIRECT TAX

1. Measures to boost the Financial Sector

1.1 It is proposed to provide that redemption by an individual of Sovereign Gold Bond issued by Reserve Bank of India under Sovereign Gold Bond Scheme, 2015 shall not be charged to capital gains tax. It is also proposed to provide that long terms capital gains arising to any person on transfer of Sovereign Gold Bond shall be eligible for indexation benefits.”

Taxation of Sovereign Gold Bond :-Memorandum of Finance Bill 2016 :

Provision for Tax benefits to Sovereign Gold Bond Scheme, 2015

Sovereign Gold Bond Scheme, 2015
The Government of India has introduced the Sovereign Gold Bond Scheme with the aim of reducing the demand for physical gold so as to reduce the outflow of foreign exchange on account of import of gold. The Gold Bond is a mode for substitution of physical gold and also provides security to the individual investor who invests in Gold for meeting their social obligation.
Accordingly, with a view to providing parity in tax treatment between physical gold and Sovereign Gold Bond, it is proposed to amend Section 47 of the Income-tax Act, so as to provide that any redemption of Sovereign Gold Bond under the Scheme, by an individual shall not be treated as transfer and therefore shall be exempt from tax on capital gains.
It is also proposed to amend section 48 of the Income-tax Act, so as to provide indexation benefits to long terms capital gains arising on transfer of Sovereign Gold Bond to all cases of assessees.
This amendment is proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent assessment years.
[Clause 28 & 29]

Taxation of Sovereign Gold Bond :NOTES ON CLAUSES OF FINANCE BILL 2016

Clause 28 of the Bill seeks to amend section 47 of the Income- tax Act relating to transactions not regarded as transfer.

Sub-clause (A) of said clause seeks to insert a new clause (viic) in the said section so as to provide that any redemption of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold BondScheme, 2015, by an assessee being an individual shall not be considered as transfer.

Clause 29 of the Bill seeks to amend section 48 of the Income- tax Act relating to mode of computation.

The aforesaid section, inter alia, provides that indexation benefit in respect of long-term capital gains as per third proviso is not available to bonds and debentures, except capital indexed bonds issued by the Government.Sovereign Gold Bond issued under the Sovereign Gold Bond Scheme, 2015, is therefore, presently, not eligible for indexation benefits.

It is proposed to amend section 48 so as to provide indexation benefits to long-term capital gains arising on transfer of the said Sovereign Gold Bond.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to assessment year 2017-2018 and subsequent years.

Taxation of Sovereign Gold Bond :relevant portion of Section 47 and Section 48  of Income tax after amendment by Finance Act 2016

Section – 28, Finance Acts – 2016 has amended section 47 of the Income tax act 1961

In section 47 of the Income-tax Act, with effect from the 1st day of April, 2017,—

(A)after clause (viib), the following clause shall be inserted, namely:—
“(viic)any transfer of Sovereign Gold Bond issued by the Reserve Bank of India under the SovereignGold Bond Scheme, 2015, by way of redemption, by an assessee being an individual;”;

Section – 29, Finance Acts – 2016 has amended section 48 of Income tax act 1961

29. In section 48 of the Income-tax Act, for the third proviso, the following provisos shall be substituted with effect from the 1st day of April, 2017:—

Provided also that nothing contained in the second proviso shall apply to the long-term capital gain arising from the transfer of a long-term capital asset, being a bond or debenture other than—

(a)capital indexed bonds issued by the Government; or
(b)Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015:

Provided also that in case of an assessee being a non-resident, any gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company subscribed by him, shall be ignored for the purposes of computation of full value of consideration under this section:”.

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