SGB at 15% higher price on stock exchanges: Why you must factor in the taxation while trading SGB in secondary market
Investors are now willing to pay a substantial premium to get their hands on any available Sovereign Gold Bond (SGB) instead of waiting for new issuances. Although there hasn't been any news about new SGB issuances since Budget 2024, there are growing speculations in the market about a potential halt or reduction in future SGB offerings. As a result, SGB prices on the National Stock Exchange (NSE) are being traded at a premium compared to the actual 999 purity gold price.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} "SGBs are trading in the stock market at 7-8% premium in anticipation of fear of more SGB tranches not being announced by the Government," says Aksha Kamboj, VP of India Bullion & Jewellers Association (IBJA) and the Executive Chairperson of Aspect Global Ventures.
How much premium are gold investors willing to pay for a unit of SGB on NSE
As of August 27, 2024, at 4:22 pm, the NSE website lists more than 60 Sovereign Gold Bonds.(https://www.nseindia.com/market-data/sovereign-gold-bond). 1 unit of SGB represents 1 gram of Gold.Reference: 999 Purity Gold AM Price as per IBJA website- Rs 71,864 for 10 grams or Rs 7,186.4 for 1 gram on August 27, 2024.
1. SGBFEB27 (2.50%GOLDBONDS2027Sr-VI IN0020180561) price: Rs 8,300 for 1 unit
2. SGBJAN27 (2.50%GOLDBONDS2027Sr-V IN0020180462) price: Rs 7,600 for 1 unit
3. SGBDC27VII (SOVEREIGN GOLD BONDS 2.50% DEC 2027 SR-VII 2019-20 IN0020190461) price: Rs 7,690
4. SGBDEC25 (2.50%GOLDBONDS 2025 SR-X IN0020170125) price: Rs 7,550
5. SGBJUN27 (2.50%GOLDBONDS2027Sr-I IN0020190073) price: Rs 7,549
6. SGBMAY26 (2.50% GOLDBONDS2026Sr-I IN0020180033) price: Rs 7,490
7. SGBMAR25 (Sovereign Gold Bonds 2.50% MAR 2025 Tr-VII IN0020160126) price: Rs 7,514
8. SGBNV29VII (SOVEREIGN GOLD BONDS 2.5% NOVEMBER 2029 SR-VII 2021-22 IN0020210178) price: Rs 7,599
9. SGBN28VIII (SOVEREIGN GOLD BONDS 2.5% NOV 2028 SR-VIII 2020-21 IN0020200286) price: Rs 7,630
10. SGBJUL25 (Sovereign Gold Bonds- 2.50% JUL 2025 Sr-II 2017-18 IN0020170034) price: Rs 7499.99
11. SGBJU29III (SOVEREIGN GOLD BONDS 2.5% JUNE 2029 SR-III 2021-22 IN0020210087) price: Rs 7,540
12. SGBAPR28I (SOVEREIGN GOLD BONDS 2.50% APRIL 2028 SR-I 2020-21 IN0020200062) price: Rs 7,590
13. SGBDE30III (SOVEREIGN GOLD BONDS 2.50% DECEMBER 2030 SR-III 2022-23 IN0020220110) price: Rs 8,004.99
Calculation of SGB premium as of August 27, 2024 4:22 pm
1. Premium for SGBFEB27: Rs 8300- 7186.4= Rs 1113.6 (15.49%= 1113.6/7186.4*100)
2. Premium for SGBJAN27: Rs 7600- 7186.4= Rs 413.6 (5.75%)
3. Premium for SGBDC27VII: Rs 7,690- 7186.4= Rs 503.6 (7%)
4. Premium for SGBDEC25: Rs 7,550- 7186.4= Rs 363.6 (5.05%)
5. Premium for SGBJUN27: Rs 7,549- 7186.4= Rs 362.6 (5.04%)
6. Premium for SGBMAY26: Rs 7,490-7186.4= Rs 303.6 (4.22%)
7. Premium for SGBMAR25: Rs 7,514-7186.4=Rs 327.6 (4.55%)
8. Premium for SGBNV29VII: Rs 7,559-7186.4= Rs 372.6 (5.18%)
9. Premium for SGBN28VIII : Rs 7,630-7186.4= Rs 443.6 (6.17%)
10. Premium for SGBJUL25 : Rs 7,499.99-7186.4-=Rs 313.59 (4.36%)
11. Premium for SGBJU29III : Rs 7,540-7186.4= Rs 353.6 (4.92%)
12. Premium for SGBAPR28I : Rs 7,590-7186.4=Rs 403.6 (5.61%= 403.6/7186.4*100)
13. Premium for SGBDE30III : Rs 8004.99-7186.4=Rs 818.59 (11.39%= 818.59/7186.4*100)
The PM price of 999 purity Gold as per IBJA website on August 27, 2024, 5:02 pm is Rs 7,176.2 for 1 gram or Rs 71,762 for 10 grams.
Source: NSE website as of August 27, 2024 4.24pmAccording to Shweta Rajani, Head - Mutual Funds, Anand Rathi Wealth, Post Budget 2024 SGBs remains the most tax effective investment in gold which can lead to this increased demand. Thus, this behaviour among several other factors in play apart from simply being driven by panic due to the anticipated stoppage of new SGB issuances.
"The last issue of SGBs was in February 2024. Since 2015, RBI has launched 67 SGB tranches, all of which were listed in the secondary markets and are available for trading in the cash segment of the BSE and NSE. In the absence of new issues, the demand for these bonds is likely to increase, which could drive their prices higher relative to the reference price," says Rajani.
Rajani opines that there is also anticipation of the Federal Reserve shifting to a rate-cutting stance. "When interest rates fall, gold prices tend to rise because gold bullion becomes more appealing compared to fixed coupon-paying assets like bonds," says Rajani.
Rajani says that ongoing geopolitical tensions have also boosted demand for gold, as it is considered a safe haven during crises. "Supply chain disruptions could lead to inflationary pressures, increasing the demand for gold as a hedge. Additionally, central banks may want to diversify their reserves by accumulating gold, especially amid geopolitical uncertainty," says Rajani.
What do SGB investors buying from the stock market need to know about taxation while selling
Here's what you need to know about taxation of SGB:Buying SGB from the stock market and selling it on the stock market is taxable for all
According to chartered accountant Prakash Hegde, if SGBs are purchased and sold also on the stock market,
If the holding period is 12 months or less - SGBs would be considered as short-term assets. The gain would be short-term capital gains (STCG). "If SGBs are sold on the stock market after being held for up to 12 months, the gains would be classified as short term and taxed as per the applicable slab rate of the taxpayer," says Kale.If the holding period is more than 12 months - SGBs would be considered as long-term assets. Since the gain would be long-term capital gains (LTCG), the tax rate will be 12.5% (if the sale is on or after 23 July 2024).Buying SGB from NSE and redeeming it during the RBI buyback or final redemption window is tax-free
According to Yogesh Kale, Executive Director, Nangia Andersen India, if you buy SGBs from the stock market, i.e., through the National Stock Exchange or other recognised stock exchanges, and then eventually redeem that SGB either through the premature withdrawal window of RBI or the final redemption window, then it is not taxable for individuals.
"In that sense, yes, it is possible to buy SGBs in its 4th year from the stock market and redeem the same at the RBI buyback window. However, the option of redemption is available only after 5 years from the date of purchase, on the date on which interest is payable on such SGB. Redemption of SGBs is exempt from capital gains tax as per section 47(viic) of the Income-tax Act, 1961," says Kale.
Kale says that it does not matter from where the SGB was acquired, what's important to note is where the SGB was sold i.e. in the RBI buyback window or the stock market. "Even if a SGB was acquired by way of transfer and that individual sells the SGB on the stock market, capital gain tax would get attracted and the tax rate will depend on the period of holding," says Kale.
No tax on SGB redemption, you may need to show it in the ITR
According to Hegde, gain on redemption of SGB is profit 'without' transfer of a capital asset; therefore, the same is not taxable. "This means that there is an income, but the same is not chargeable to tax. Consequently, it is advisable to report the same under 'Other Exempt Income" - 'Any Other' drop down (in Nature of Income) in "Schedule EI"- "Details of Exempt Income (Income not to be included in total income or not chargeable to tax)" in the ITR," says Hegde.
If your sole source of income is SGB, you do not need to include it in your ITR. "Redemption of SGBs is not considered as "transfer" attracting capital gain tax. Therefore, one who does not have any other income may skip filing an ITR just to report redemption of SGBs. However, the mandate to file ITR does not depend just on the amount of taxable income," says Kale from Nangia Anderssen India.
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This story originally appeared on: India Times - Author:Faqs of Insurances
