Budget 2026 Closes Tax-Free Exits on Sovereign Gold Bonds
The Budget for 2026-27 has introduced significant changes to the tax treatment of sovereign gold bonds (SGBs), narrowing the circumstances under which these popular gold investments retain their tax-free status. Starting 1 April 2026, the tax exemption on capital gains from SGBs will be strictly limited to investors who purchased the bonds at the time of issue and hold them until the full eight-year maturity period.
Key Changes in Tax Treatment
The Budget has effectively removed two important tax benefits that were previously available to SGB investors:
- Secondary Market Buyers Excluded: Investors who purchased SGBs on stock exchanges will no longer enjoy tax-free gains, even if they hold the bonds until maturity. This change marks a departure from the previous regime where all holders could benefit from tax exemption at maturity.
- Premature Redemption Route Closed: The Budget has quietly withdrawn the capital gains tax exemption on SGBs redeemed prematurely through the Reserve Bank of India (RBI) after the mandatory five-year lock-in period. This affects both primary and secondary market buyers.
According to Harshal Bhuta, partner at P. R. Bhuta & Co. CAs, "Now, tax exemption is not available to anyone upon premature redemption, including if the redemption is by the RBI after a lock-in period of five years."
Final Opportunity in February 2026
Despite these sweeping changes taking effect from April 2026, investors have one final window to avail of tax-free premature redemption. The RBI's premature redemption calendar for October 2025 to March 2026 identifies four specific SGB series that will be eligible for this benefit:
- SGB 2020-21 Series VI (matures 7 March 2026)
- SGB 2020-21 Series XII (matures 9 March 2026)
- SGB 2019-20 Series X (matures 11 March 2026)
- SGB 2019-20 Series IV (matures 17 March 2026)
Harsh Roongta, founder of Fee Only Investment Advisers, explains that "investors can still use the premature redemptions lined up in March when the notice window opens in February. All such redemptions will be tax-free."
The premature redemption windows for these series are expected to open on specific dates in February 2026, as per RBI's circular dated 22 August 2025:
- February 5 for Series VI
- February 6 for Series XII
- February 7 for Series X
- February 13 for Series IV
New Tax Regime from April 2026
Starting 1 April 2026, SGBs will be tax-free under only one condition: when purchased at issue and held continuously for eight years until maturity. The FAQ on Budget 2026 has explicitly clarified that premature redemption, even after completing the five-year lock-in period, will not be eligible for exemption.
For all other situations, investors will need to pay capital gains tax:
- Long-term capital gains (holding period over one year): 12.5% tax rate
- Short-term gains: Taxed at applicable slab rates
This represents a significant shift from the previous tax structure where SGBs offered more flexible tax benefits, making them stand out among gold investment options.
Action Required for Eligible Investors
Investors holding SGBs from the four eligible series must act promptly to take advantage of the final tax-free premature redemption opportunity. They need to:
- Submit redemption requests at least one month in advance through their bank or depository
- Ensure they meet the minimum five-year holding requirement from the date of issue
- Complete the process before the March 2026 deadlines to benefit from existing tax exemptions
This narrow window represents the last chance for investors to exit their SGB positions without incurring capital gains tax liability under the old regime.
