SGB Premature Redemption Price 2026 | Income Tax Impact

What Happened?

The Government of India has officially announced that Sovereign Gold Bond (SGB) 2021-22 Series VII, issued on November 2, 2021, is now eligible for premature redemption. The redemption date has been set for November 2, 2026, and the redemption price is fixed at ₹14,167 per unit. This price has been calculated based on the simple average of gold closing prices (999 purity) for three business days—October 28, 29, and 30, 2026, as published by the India Bullion and Jewellers Association Ltd (IBJA).

Background & Legal Context

The Sovereign Gold Bond Scheme is a Government of India initiative regulated under notification F.No. 4(5)-B(W&M)/2021 dated October 21, 2021. Let us understand the key legal and tax implications:

When Can You Redeem SGBs?

• Mandatory holding period: SGBs must be held for a minimum of five years from the date of issue before premature redemption is permitted.
• Maturity period: The standard maturity period for SGBs is eight years from the date of issue.
• Early redemption window: Once five years have passed, investors can redeem their bonds on any interest payment date.
• For SGB 2021-22 Series VII: Since the bond was issued on November 2, 2021, the five-year lock-in period ends on November 2, 2026, making November 2, 2026, the first eligible date for premature redemption.

Income Tax Treatment Under Income Tax Act 2025

The redemption of SGBs has specific tax implications that every investor must understand:

Capital Gains Taxation

When you redeem an SGB, the difference between the redemption price and your purchase price constitutes a capital gain. Under Section 55 of the Income Tax Act 2025, the cost of acquisition is the amount you paid when purchasing the bond.

• Long-term capital gains (LTCG): If the SGB is held for more than 24 months (two years) from the date of acquisition, the gain is treated as LTCG. For SGB 2021-22 Series VII issued on November 2, 2021, redemption on or after November 2, 2023, will qualify for LTCG treatment.
• LTCG tax rate: Under Section 112 of the Income Tax Act 2025, LTCG from gold and gold bonds is taxed at 20% (plus applicable surcharge and cess) with the benefit of indexation.
• Indexation benefit: As per Section 55 (2)(xvi) of the Income Tax Act 2025, the cost of acquisition can be indexed for inflation using the Cost Inflation Index (CII). This significantly reduces the taxable capital gain.

Interest Income Taxation

SGBs also provide annual interest at 2.50% per annum (as per the original issuance terms). This interest is taxable as income from other sources under Section 56 of the Income Tax Act 2025 and must be reported in your income tax return. The interest is taxed at your applicable slab rate.

TDS Implications

While the principal redemption amount is not subject to TDS, the interest component may be subject to TDS at source at 10% (or lower if applicable) as per Section 194LA of the Income Tax Act 2025. Ensure your bank has your correct PAN to claim TDS credit.

What Does This Mean for You?

For SGB Investors (Assessment Year 2026-27)

If you hold SGB 2021-22 Series VII and plan to redeem on November 2, 2026, here is what you need to know:

• Redemption price clarity: You will receive exactly ₹14,167 per unit. If you purchased 10 units at ₹10,000 per unit (₹1,00,000 total), you will receive ₹1,41,670 on redemption.
• Capital gain calculation: Your capital gain = ₹1,41,670 (redemption price) minus ₹1,00,000 (purchase price) = ₹41,670. However, this is before claiming indexation benefit.
• Indexation adjustment: The CII for FY 2021-22 (the year of purchase) and the CII for FY 2025-26 (the year of redemption) will be used to index your cost. This typically increases the cost of acquisition, thereby reducing the taxable gain. For example, if the indexed cost comes to ₹1,15,000, your taxable gain would only be ₹26,670.
• Tax liability: This LTCG of ₹26,670 (after indexation) will be taxed at 20% (plus surcharge based on income level and cess), resulting in tax of approximately ₹5,334 plus surcharge and cess.
• Interest income: If you received interest annually (2.50% per annum), that interest accumulated over five years must also be reported separately and taxed at your slab rate.

For First-Time SGB Redeemers

Many investors bought SGBs in 2021-22 for the first time and may not be familiar with tax filing. This redemption will trigger your first interaction with capital gains taxation, making it important to file your ITR correctly for AY 2026-27.

For NRIs and Foreign Citizens

NRIs are eligible to hold SGBs, and the same tax treatment applies. However, additional considerations under Section 115A and 115B (Foreign Remittance provisions) may apply if you are repatriating funds outside India. Consult a tax expert before redemption.

What Should You Do Now?

Action Items for SGB Holders

• Gather documents: Collect your SGB purchase confirmation, the exact date of purchase, and the purchase price per unit from your bank or post office records.
• Calculate your gain: Determine your redemption price (₹14,167 per unit) minus your cost price. Note the number of SGBs you hold.
• Obtain CII values: Get the Cost Inflation Index (CII) for FY 2021-22 (the year of issue) and FY 2025-26 (the redemption year) from the Income Tax Department website or your CA.
• Track interest receipts: Maintain all interest payment receipts received during your holding period. Sum up total interest earned for tax reporting.
• Plan redemption timing: You are not obligated to redeem on November 2, 2026. You can also redeem on any subsequent interest payment date (typically January 2 and July 2 each year) if you wish to delay the tax liability to a future year.
• Consult your CA: Before redemption, discuss your complete financial picture with a tax professional. They can advise on whether to redeem now or later, how to optimize indexation benefits, and how this fits into your overall tax planning for AY 2026-27.
• File ITR on time: Once you redeem, ensure you file your income tax return for AY 2026-27 by July 31, 2026, disclosing the capital gain and interest income. Non-filing can invite notices under Section 139(1) of the Income Tax Act 2025.

Key Takeaways

• Redemption is now open: SGB 2021-22 Series VII can be redeemed starting November 2, 2026, at ₹14,167 per unit based on gold prices for October 28-30, 2026.
• Long-term capital gains apply: Since the SGB was held for five years (well beyond two years), any gain will attract LTCG tax at 20% with indexation benefit, which significantly reduces tax liability.
• Indexation is crucial: Always claim indexation benefit on your cost of acquisition. This is a powerful tax-saving tool that increases your cost base by inflation, reducing taxable gains.
• Interest is taxable separately: The annual 2.50% interest you received is taxable as income under Section 56 at your applicable slab rate and must be reported in your ITR for AY 2026-27.
• Redemption is optional: You are not forced to redeem on November 2, 2026. You can choose any interest payment date thereafter, allowing you to defer tax to a future year if beneficial.

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