Sovereign Gold Bonds: This week, premature redemption on Series I of 2017-18 can earn you 147% returns. Check details.

Sovereign Gold Bonds are one of the most sought-after gold bonds available in India. The Reserve Bank of India (RBI), which issues these gold bonds, has announced the redemption price for sovereign gold bond (SGB) Series I of 2017-18 due on May 10, 2024. One can opt for prematurely withdrawal of sovereign gold bond investment once it completes the fifth year. The premature redemption rate for the same is Rs 7,165 per unit, which is a profit of Rs 4,264 per unit and nearly 147% more than the issue price.

The bonds were issued at Rs 2,901 per unit on November 20, 2017. For the premature redemption of SGB Series I of 2017-18, this average is calculated from April 29 to May 3, 2024. The redemption price is determined based on the simple average of the closing gold price of 999 purity over the preceding three business days, as reported by the India Bullion and Jewellers Association (IBJA).

Sovereign Gold Bonds offer a fixed interest rate of 2.5% per annum on the initial investment. The interest is paid on a semi-annual basis. The lock-in period is 8 years. But a redemption clause is also available for investors.

So, if one invested Rs 1 lakh in Sovereign Gold Bond 2017-18 Series VIII in 2017, he or she will get Rs 2.43 lakh if you prematurely withdraw it this month. And, if he or she decides to keep it for three more years, he would earn an interest of Rs 1,250 every six months for a tenure of seven years.

How to prematurely withdraw SGBs

For premature redemption of SGBs, investors can approach the concerned bank/Stock Holding Corporation of India Limited (SHCIL) offices/post office/agent 30 days before the coupon payment date.

RBI has said requests for premature redemption can only be entertained if the investor approaches the concerned bank/post office at least one day before the coupon payment date. The proceeds will be credited to the customer's bank account provided at the time of applying for the bond.

The proceeds are credited to the customer’s bank account provided at the time of applying for the bond.

There is a 10-day gap from the last date of premature redemption and the interest payment.

Tax on premature withdrawal

Sovereign gold bond returns can be categorised into two types: capital gains obtained upon bond maturity and semi-annual interest earnings.  RBI says interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long terms capital gains arising to any person on transfer of bond.

TDS: TDS is not applicable on the bond. However, it is the responsibility of the bond holder to comply with the tax laws.

Investors who hold the bond for the entire term (8 years) are exempted from long-term capital gains tax. However, the periodic interest income is subject to taxation under the category of 'Income from other sources' and is taxed according to the income tax slabs set by the central government.