The Reserve Bank of India has opened the premature redemption window for Sovereign Gold Bond (SGB) Series I 2020-21 investors. This particular SGB can be prematurely withdrawn at Rs 9,600 per bond. This translates into a return of Rs 5,011, since this particular SGB (SGB202101) was issued 5 years ago at Rs 4,589 per bond. In absolute percentage terms this SGB is giving 109.1959% return in this particular April 2025 premature redemption window. In light of these facts, 109.19% absolute return from gold investment in five years is very attractive, especially when you consider that individuals don’t need to pay any capital gains tax on this income at all. Hence if you wish to opt for this premature withdrawal of SGB 2020-21 Series I then note its due on April 28, 2025. The deadline to opt for premature withdrawal will be closed before the interest on such SGB is paid. Interest on SGBs are paid on a semi-annual basis i.e. twice a year. On this particular SGB 2020-21, the interest is 2.5% per annum. The ISIN number of this particular SGB is IN0020200062.
How SGB investment gains are non-taxable but interest is not?
Under the structure of SGBs, the government has given capital gains tax exemption on redemption of SGBs only to individuals. But the 2.5% annual interest given on such SGBs are taxable in all investor’s hands including individuals. Moreover, if you sell the SGBs on secondary markets (stock market) then it’s not tax free and you need to pay the applicable capital gains tax. This is because sale of SGBs in the stock market (secondary markets) is regarded as transfer of SGBs and not redemption. Redemption of SGBs can only happen through the specified RBI buyback windows.
How SGB 2020-21 Series I is giving 109.19% absolute return in the April 2025 premature redemption window
In a press release dated April 25, 2025, the Reserve Bank of India said: “The redemption price of SGB shall be based on the simple average of closing gold price of 999 purity of previous three business days from the date of redemption, as published by the India Bullion and Jewellers Association Ltd (IBJA). Accordingly, the redemption price for premature redemption due on April 28, 2025, shall be Rs 9,600/- (Rupees Nine Thousand Six Hundred only) per unit of SGB based on the simple average of closing gold price for the three business days i.e., April 23, April 24, and April 25, 2025.”
Calculations:
- April 2025 premature redemption price: Rs 9,600
- Issue price on April 24, 2020: Rs 4,589
- Income of SGB 2020-21 Series I redeemed at the April 2025 premature redemption window: Rs 9,600-4,589= Rs 5,011
- Absolute return percentage: Rs 5,011/4589*100%= 109.19%
“Though the tenor of the bond is 8 years, early encashment/redemption of the bond is allowed after the fifth year from the date of issue on coupon payment dates. The Bonds bear interest at the rate of 2.50 per cent (fixed rate) per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal,” as per a frequently asked question (FAQ) by the RBI.
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