The Indian Government, in cooperation with the Reserve Bank of India (RBI), has recently decided to issue Sovereign Gold Bonds (SGBs) in installments for 2023-2024. First introduced in November 2015 under the Gold Monetisation Scheme, the SGB program intends to lessen the demand for physical gold and move a portion of domestic savings currently used for gold purchases into financial savings.
Understanding the Sovereign Gold Bond Scheme
Primarily issued by RBI on behalf of the Indian Government, there are several key details of the scheme to note. Eligible parties include resident individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions. With a tenor of eight years, premature redemption is possible after the 5th year. The minimum investment required is one gram of gold, while the maximum limit of subscription is set at 4 Kg for individuals and HUFs, and 20 Kg for trusts and similar organizations yearly.
Key Aspects of SGBs
For joint holders, the 4 Kg limit applies only to the first applicant. The price of an SGB is determined in Indian Rupees based on the average closing price of 999 purity gold as published by the India Bullion and Jewellers Association Limited. These bonds can be purchased via scheduled commercial banks (excluding Small Finance Banks, Payment Banks, and Regional Rural Banks), Stock Holding Corporation of India Limited, Clearing Corporation of India Limited, designated post offices, and National Stock Exchange of India Limited and Bombay Stock Exchange Limited, either directly or through their agents.
Interest Rate and Tax Treatment
Investors receive a fixed interest compensation of 2.50% per annum, paid semi-annually on the nominal value. They have the option to use SGBs as collateral for loans. Interest on SGBs is taxable according to the Income Tax Act, 1961, although capital gains tax arising from redemption of SGB to an individual is exempted.
Tradability and SLR eligibility
SGBs are eligible for trading and those obtained by banks through the pledge process will be recognized as part of their Statutory Liquidity Ratio (SLR) requirements.
About India Bullion and Jewellers Association Ltd. (IBJA)
Established in 1919, IBJA serves as the top association for all bullion and jewellery associations in India. It releases daily Gold AM and PM Rates, taken as benchmark rates for issuing Sovereign Bonds. IBJA assists its members by promoting and regulating bullion trade, resolving disputes, providing a neutral platform for weighing precious metals, and interacting with government departments.
SGBs and Gold Monetization Scheme: Objectives
Launched by the Government in 2015, the main goal of the Sovereign Gold Bond Scheme and Gold Monetization Scheme is to mobilize the gold held by households and institutions, reduce reliance on import of gold over time to meet domestic demand, and provide a boost to the gems and jewellery sector in the country by making gold available as raw material on loan from the banks. Foreign Direct Investment (FDI) promotion in the gold and jewellery sector, however, is not an objective of these schemes.
