EaseValueWhat Happened?
The Government of India has announced the redemption price for premature redemption of Sovereign Gold Bond (SGB) 2021-22 Series V on August 17, 2026. The redemption price has been fixed at ₹15,295 per unit, calculated as the simple average of the closing price of 999 purity gold for three consecutive business days (August 12, 13, and 14, 2026) as published by the India Bullion and Jewellers Association Ltd (IBJA). This is a significant development for investors who purchased these bonds in August 2021 and held them through the mandatory five-year holding period.
Background & Legal Context
The Sovereign Gold Bond Scheme was introduced by the Government of India to provide investors an alternative to physical gold. The scheme is governed by the Public Debt Act, 1944, and operational guidelines issued periodically by the Department of Economic Affairs. The SGB 2021-22 Series V was issued on August 17, 2021, under the authority of GOI notification F.No. 4(5)-B(W&M)/2021 dated May 12, 2021.
Key Redemption Rules:
- Premature redemption is permitted only after the fifth year from the date of issue, which means August 17, 2026, is the earliest redemption date for Series V bonds
- Redemption can only be done on an interest payment date (typically quarterly)
- The redemption price is not fixed in advance but determined based on prevailing gold prices using a three-day average closing price methodology
- This ensures transparency and market-linked valuation for bondholders
Income Tax Act 2025 Treatment:
From a taxation perspective, gains arising from SGB redemption are subject to specific provisions under the Income Tax Act 2025. While the bonds themselves provide tax-free interest income, the capital gain (difference between redemption price and purchase price) is taxable. Importantly, under Section 112A of the Income Tax Act 2025 (corresponding to Section 112A of the 1961 Act), gains from redemption of SGBs are treated as long-term capital gains (LTCG) provided the holding period exceeds two years from the date of acquisition.
Since investors who purchased SGB 2021-22 Series V in August 2021 and are redeeming in August 2026 have a holding period of exactly five years, they will unquestionably qualify for LTCG treatment. The applicable tax rate depends on the type of asset:
- For individuals: LTCG on SGBs is taxed at 20% with indexation benefit under Section 112A
- For HUFs: Same treatment as individuals
- For corporates: LTCG taxation at 20% applies with similar indexation provisions
- Assessees can opt for taxation under the new Section 112A(1B) at a flat 20% rate without indexation benefit, or claim indexation benefit with 20% rate
The indexation benefit is crucial because it allows you to adjust the cost of acquisition using the Cost Inflation Index (CII) for the relevant financial years. This significantly reduces the taxable capital gain.
What Does This Mean for You?
For Individual Investors and HUF Holders:
If you purchased SGB 2021-22 Series V in August 2021 and redeem on August 17, 2026, the gain will be taxed as LTCG. The calculation will work as follows:
- Purchase price in August 2021 will be indexed using CII for FY 2021-22 and 2025-26
- Redemption price received: ₹15,295 per unit
- Indexed cost of acquisition will be calculated using the applicable CII
- Capital gain = Redemption price minus indexed cost
- Tax on LTCG = 20% of capital gain (after indexation benefit)
Assessment Year (AY) 2026-27 Implications:
For redemptions happening in August 2026 (FY 2026-27), the gain will be reported in your income tax return for AY 2026-27 (to be filed by July 31, 2027). The relevant ITR schedule is Schedule CG (Capital Gains) for reporting LTCG from SGBs. You must maintain documentary proof of:
- Original purchase statement showing purchase date and price
- Redemption statement showing redemption date and price
- PAN and demat account details (if held in demat form)
For Corporate Investors:
Corporates redeeming SGBs will also qualify for LTCG treatment at 20% with indexation benefit. However, if the corporate has trading income, the gain may be considered as income from business/profession unless the bonds are held as long-term investment.
Tax Planning Consideration:
The Cost Inflation Index (CII) plays a vital role in reducing your tax liability. The CII for FY 2021-22 (when bonds were purchased) and FY 2025-26 (when gain accrued) will significantly impact the indexed cost. Higher CII values mean lower taxable capital gains. This is a key tax benefit of holding SGBs versus physical gold.
What Should You Do Now?
Immediate Actions:
- Locate your purchase documents: Retrieve the original SGB purchase statement from August 2021 showing the exact purchase price per unit
- Check your demat account: If bonds are held in electronic form, verify the holding quantity and obtain a demat statement
- Calculate your gain: Multiply the number of units by ₹15,295 to get gross redemption proceeds
- Prepare for redemption: Submit redemption request to your bank or SGB issuing agent by the deadline (typically 15 days before redemption date)
Tax Planning Actions:
- Compute indexed cost: Use the Cost Inflation Index (CII) for FY 2021-22 and FY 2025-26 to calculate indexed acquisition cost. This is critical for minimizing tax
- Determine applicable CII: The CII for FY 2021-22 is 317 and for FY 2025-26 will be published by CBDT. Use the published rates to compute indexed cost using the formula: Indexed Cost = Original Cost × (CII of year of transfer / CII of year of acquisition)
- Track exemptions: If you have any exemptions available under Section 54 or 54F (reinvestment in house property or notified bonds), plan accordingly
- Review ITR schedule: Plan to report the LTCG in Schedule CG of your ITR for AY 2026-27
Documentation Preservation:
- Keep the redemption receipt and bank credit advice (proof of receipt of funds)
- Maintain a record of the three-day gold price average used for determining redemption price
- File your ITR on time to avoid penalty and keep the computation available for scrutiny
Key Takeaways
- Redemption Price Fixed: SGB 2021-22 Series V premature redemption on August 17, 2026, is at ₹15,295 per unit, based on average gold prices of August 12-14, 2026
- LTCG Treatment: Capital gains from redemption are taxed as long-term capital gains at 20% under Section 112A of Income Tax Act 2025, with indexation benefit available
- Indexation Benefit Critical: Using Cost Inflation Index (CII) significantly reduces your taxable gain and is a major tax advantage of SGBs over physical gold
- AY 2026-27 Filing Required: Report the gain in Schedule CG of your ITR for AY 2026-27 with complete documentation and computation
- No Tax on Interest: The annual interest received on SGBs remains tax-free, making this a tax-efficient investment for long-term wealth creation
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