Budget 2026 tax changes: SGB tax rule change from April 2026 may wipe out secondary market premiums

A proposed change to the taxation of Sovereign Gold Bonds (SGBs) has rattled investors, especially those active in the secondary market. Reacting sharply to the move, Deepak Shenoy, CEO of Capitalmind, warned that buying SGBs from stock exchanges will no longer deliver tax-free capital gains at maturity.

“If you buy SGBs in the market, not from the primary issuance, you will pay full tax on capital gains when the bond is redeemed. This applies from April 1, 2026,” Shenoy said. He added that the change is “very negative” for investors who accumulated SGBs through secondary market purchases rather than subscribing at issuance.

What the law says so far

Under the existing provisions of the Income-tax Act, capital gains arising from the redemption of Sovereign Gold Bonds issued by the Reserve Bank of India are exempt from tax. This exemption has been one of the biggest advantages of SGBs over physical gold and gold ETFs. The RBI issues SGBs in multiple tranches, with each series treated as a separate issuance.

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What is changing

Going forward, the capital gains tax exemption will no longer apply to all SGB redemptions. Under the revised framework, the exemption will be available only if the investor subscribes to the bond at the time of original issuance by the RBI and holds it continuously until maturity.

If an investor buys an SGB from the secondary market, or sells an originally allotted bond and later re-buys it, the exemption will be lost. Only original allottees who hold the bond uninterrupted till maturity will continue to enjoy tax-free capital gains.

Market impact likely to be immediate

Experts said the change fundamentally alters the valuation of SGBs traded on exchanges. This basically kills the SGB premium in the secondary market overnight. People were paying 10–15% over NAV specifically because of the tax-free redemption. Now, if you bought in the secondary market, you’re paying full tax on those gains. The math completely changes. Experts expect a sharp correction in SGB market prices as early as Monday, as investors reassess valuations without the tax advantage.

Rajarshi Dasgupta, Executive Director - Tax, AQUILAW, said: “In her Union Budget 2026‑27 address, Finance Minister Nirmala Sitharaman proposed a key change to the tax treatment of Sovereign Gold Bonds. She stated that the capital gains exemption will now be available only to individuals who subscribe to the bonds at the time of the original issue and hold them continuously until maturity. The Budget also specified that this exemption will apply uniformly across all issuances of Sovereign Gold Bonds by the Reserve Bank of India, ensuring a consistent and standardised tax benefit for eligible investors.”

When it takes effect

The new rule will apply from April 1, 2026, and will be effective from Assessment Year 2026–27 onwards.

SGB features

Sovereign Gold Bonds (SGBs) offer favourable tax treatment, particularly for long-term investors. A major benefit is the complete exemption from capital gains tax if the bonds are held until their 8-year maturity or redeemed early through the RBI after five years.

In addition to price appreciation, SGBs pay a fixed annual interest of 2.5%, which is taxable under “Income from Other Sources” at the investor’s applicable income tax slab, though no tax is deducted at source on this interest. For investors who sell SGBs in the secondary market before maturity, the tax treatment differs based on the holding period.

If the bonds are held for less than one year, any gains are treated as short-term capital gains and taxed as per the individual’s slab rate. If held for more than one year, gains are classified as long-term and taxed at 12.5% without indexation for sales made on or after July 23, 2024.

Why the government made the change

The government’s stated objective is to ensure uniform application of the exemption and restrict the tax benefit to long-term, original investors. By doing so, it aims to curb arbitrage opportunities that arose when investors bought SGBs at a premium in the secondary market purely to capture tax-free redemption gains.

The tax-free maturity benefit on Sovereign Gold Bonds will now be strictly limited to original subscribers who hold till maturity. For secondary market buyers, the loss of this exemption is likely to trigger repricing, reduce premiums over NAV, and significantly dampen demand for exchange-traded SGBs.