SGBs (Sovereign Gold Bonds) are taxed differently at different stages, including acquisition, interest income, and capital gains.
Acquisition: When you purchase SGBs, there is no tax on the purchase price.
Interest Income: SGBs provide an annual interest rate. This interest is taxable as per your income tax slab rate. It is added to your income and taxed accordingly. If the interest income from SGBs exceeds Rs. 10,000 in a financial year, the issuer deducts TDS at the rate of 10% before disbursing the interest amount.
Redemption: When you redeem or sell the SGBs, the capital gains are calculated based on the selling price minus the acquisition cost.
If you hold the bonds for more than three years, it is considered a long-term capital gain, and if it is held for less than three years, it is a short-term capital gain, taxed at your applicable income tax slab rate.
If you sell SGBs after holding them for more than three years, the capital gains are taxed at a flat rate of 20% with indexation benefits. Indexation adjusts the purchase price for inflation, reducing the taxable gains.
If you sell SGBs at maturity, the capital gains are tax free.