Festive Season Triggers Precious Metals Boom
The combination of festive buying and global political uncertainty created a perfect storm for precious metals during Dhanteras, with gold prices surging an impressive 66% and silver following closely with a 55% increase. This dramatic price movement triggered two distinct investor behaviors - some rushed to accumulate more metal, convinced prices would continue climbing, while others seized the opportunity to book profits from the astronomical rise.
Indian households flocked to jewellery shops to sell their physical gold and silver holdings, while sophisticated investors who had chosen electronic forms like exchange-traded funds (ETFs) or Sovereign Gold Bonds (SGBs) took their transactions to stock exchanges. The scale of this activity was substantial, with SGBs worth ₹16.97 crore changing hands on stock exchanges during this period.
Understanding Sovereign Gold Bonds Taxation
Sovereign Gold Bonds, issued by the Government of India during specific windows to reduce foreign exchange outflow for gold imports, come with slightly complex taxation rules that every investor must understand. According to Raju Shah, an Ahmedabad-based Chartered Accountant, "If held until the 8-year maturity period, the entire capital gain (appreciation in prices) is tax-free."
Ameet Patel, partner at Manohar Chaudhary & Associates, explains an important market dynamic: "SGBs often trade at a 10–15% premium over the prevailing gold price because secondary market buyers also factor in the 2.5% annual interest that accrues on these bonds. While this premium may seem attractive, the capital gains tax on such sales effectively negates most of this perceived benefit."
This tax advantage creates a clear pricing pattern in the market. Units maturing on November 20, 2025, are trading at ₹11,902 compared to the price of ₹13,908 for the series maturing in February 2032, demonstrating how bonds with longer maturity periods command higher prices due to their superior after-tax returns.
Tax Rates and Holding Periods Explained
The tax treatment of SGBs depends critically on how long you hold the units before selling. The crucial distinction revolves around the 12-month mark. "If one sells the SGB units within the first year after investing, then the entire gain in price appreciation is added to your income and taxed as per your income tax bracket," says Shah.
However, if you sell after 12 months, a long-term capital gains tax of 12.5% applies. Karan Batra, managing partner at KN Global Consultants, advises that "Those who want to trade in the metal or bonds and are in the higher tax bracket should wait for the investment to turn at least a year old to sell, as the gains would turn long-term and a lower tax rate of 12.5% is applicable."
Other electronic gold investment forms like Gold and Silver ETFs follow similar taxation patterns. Ameet Patel clarifies that "Gold and Silver ETFs do not qualify for any exemption — every sale, irrespective of holding period, triggers capital gains tax." Silver ETF fund of funds (FoF) requires a longer 24-month holding period for long-term capital gains eligibility.
Premature Exit Options and Tax Implications
While Sovereign Gold Bonds are designed for an eight-year holding period, investors have premature withdrawal options after 5 years. They can tender their SGB units to the Reserve Bank of India and receive unit values linked to the gold rate plus accumulated interest.
Patel explains the tax advantage of this route: "In accordance with Section 47(viic), capital gains arising on such redemption—whether at maturity or under premature redemption—are fully exempt for individual investors. Hence, redemption through the RBI (including premature redemption) does not attract any capital gains tax, whereas selling on exchanges continues to be taxable."
The stock exchange route provides better liquidity but comes with tax consequences. Once you exit through exchanges, you must calculate and pay the appropriate amount of tax based on your holding period.
Interest Taxation and Tax Saving Strategies
SGB investors receive 2.5% annual interest, which is taxed according to the investor's tax slab. Shah notes that "One needs to mention interest earned on SGBs in the 'other income' column in your tax return and pay the appropriate tax." Interest accrues twice annually, and investors can choose between accrual or receipt methods for tax payment.
While capital gains bonds that typically help save taxes on other investments aren't permitted for SGB, ETF, or silver ETF gains, there's an alternative strategy. Chartered accountant Mehul Sheth reveals that "If you have sold gold jewellery or artefacts, then the entire amount (without any adjustment) can be invested into a house and no tax will be applicable on the sale proceeds as per Section 54 and 54F."
This provision allows investors to avoid paying any tax if they invest the entire sale proceeds (not just the gain amount) into residential property within three years of selling gold jewellery. Sheth adds that "You can even purchase two properties using the gains. However, this option is permitted only once in a lifetime if the gains do not exceed ₹2 crore."
As Batra suggests, "If you are planning to invest in a house property within three years from the sale date of the gold or silver investments, then you can reinvest the money and get an exemption on tax, under Section 54 (F)."
