- The government has launched the Sovereign Gold Bond Scheme FY19 with an aim to shift investment demand towards “paper gold” and to cut down gold imports and lower the current account deficit.
- Being conscious of the fact that that hiking the customs duty on gold from the current 10 per cent to trim imports also raises risks of smuggling, the government has decided to promote gold bond scheme.
- Sovereign gold bonds will be sold every month from October 2018 to February 2019 through banks, Stock Holding Corporation of India Ltd, designated post offices, and recognized stock exchanges.
- The tenor of the bond will be for a period of eight years with exit option in the fifth, sixth and seventh year.
- Payment for the bonds can be made through demand draft, cheque and electronic banking, while cash payment is allowed up to a maximum of ₹ 20,000.
About Sovereign Gold Bonds Scheme
- In 2015, Government introduced the Sovereign Gold Bonds as substitutes of expensive gold imports that impact the current account deficit (CAD).
- The main objective of the scheme was to develop a financial asset as an alternative to purchasing metal gold, thus also aimed at changing the habits of Indians from saving in physical form of gold to a paper form with Sovereign backing.
What are Sovereign Gold Bonds?
- Sovereign Gold Bonds is government securities denominated in grams of gold.
- They are substitutes for holding physical gold.
- Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.
- The Bond is issued by Reserve Bank on behalf of Government of India.
- The sovereign gold bond, gold monetisation scheme and Indian gold coin were launched by Prime Minister Narendra Modi in 2015.
Alternative to physical gold:
- The SGB offers a superior alternative to holding gold in physical form as the risks and costs of storage are eliminated.
- SGB is free from issues like making charges and purity in the case of gold in jewellery form.
- The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.
- The quantity of gold for which the investor pays is protected, since the investor receives the ongoing market price at the time of redemption/ premature redemption.
- Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB.
- Eligible investors include individuals, trusts, universities and charitable institutions.
- The sovereign gold bond is denominated in multiples of one gram of gold, which is the minimum permissible investment limit.
- A subscriber is allowed a maximum limit of 4 kilograms in case of individuals and HUFs in a financial year.
- The upper limit of investment in case of trusts and similar entities per fiscal year is 20 kilograms.
- The annual ceiling includes bonds subscribed under different tranches in the initial issuance and those purchased from the secondary market.
- The bonds carry a 2.5 per cent annual interest for investors and investors will get the interest payable semi-annually on the nominal value of investment.
Income tax benefit:
- The interest on SGB investment is taxable under the Income Tax Act, 1961 (43 of 1961). However, any capital gains tax arising on redemption of the SGB to an individual has been exempted.
- Gold bonds come with a maturity period of eight years.
- The investor gets an opportunity to exit the bond in the fifth, sixth and seventh year on the interest payment dates.