Investors must report SGB interest and capital gains accurately in their ITR for Assessment Year 2026-27. While current rules apply now, Budget 2026 introduces future changes for secondary market buyers starting AY 2027-28. Proper filing in the correct ITR schedule helps avoid potential tax notices.
As the July 31 deadline for filing Income Tax Returns (ITR) for Assessment Year 2026-27 approaches, individuals holding Sovereign Gold Bonds (SGBs) must ensure their tax reporting is precise. These government-backed securities have specific tax treatments for both interest income and capital gains that investors should manage carefully to stay compliant with tax laws.
Reporting Interest Income
The 2.5% annual interest earned on SGBs is fully taxable according to your applicable income tax slab. Investors must disclose this amount under Schedule OS (Income from Other Sources) in their tax filings. While the interest is taxable, it is important to note that SGB interest is exempt from Tax Deducted at Source (TDS) under Section 193 of the Income Tax Act. Because no TDS is deducted, investors are responsible for calculating and paying the correct tax on this income during their self-assessment.
Capital Gains and Maturity Benefits
For the current Assessment Year 2026-27, the treatment of capital gains remains favorable for original subscribers. If you hold your SGBs until the maturity date and redeem them directly through the Reserve Bank of India (RBI), the capital gains are tax-exempt. Investors can report these gains under Schedule EI (Exempt Income) in their ITR forms. This exemption has been a primary attraction for long-term investors seeking tax-efficient ways to participate in gold price movements.
Future Changes from Budget 2026
Investors should be aware of a policy shift that will take effect from Assessment Year 2027-28, following updates in Budget 2026. While the maturity redemption exemption remains for original subscribers, it will no longer extend to those who purchase SGBs from the secondary market. Starting from the 2027-28 filing cycle, secondary market buyers will be required to pay tax on any capital gains realized upon redemption or sale. These gains will need to be reported under Schedule CG (Capital Gains).
Choosing the correct ITR form is essential for proper disclosure. Depending on the source of your other income, you will typically use ITR-2, ITR-3, or ITR-4. Because tax laws regarding government securities are precise, ensuring that your interest income and any capital gains are categorized in the correct schedules is the best way to prevent scrutiny or the receipt of tax notices from the Income Tax Department. Investors should review their holding period and acquisition method—whether they subscribed at the initial issuance or bought through the secondary market—to prepare for these upcoming changes in their future tax calculations.