Budget 2026 changed the game for Sovereign Gold Bonds. Everyone was hoarding SGBs for the tax-free exit at maturity. The government said, not so fast. Let me break down what happened.
If you bought SGBs at original issuance, directly from the RBI or through banks when a new tranche was launched, and you hold till maturity, your capital gains are still tax-free. Nothing changed there. That is the good news. So if you have SGBs from the primary market and you are patient enough to hold for 8 years, you are fine. You also get that 2.5% annual interest, which is taxable, but the capital gains part stays clean. Nice.
Here is the twist. If you bought SGBs from the secondary market, meaning from the stock exchange after they were already issued, you now pay capital gains tax like any other investment. Long-term capital gains are taxed at 12.5%. No more special treatment. This killed the premium that secondary market SGBs used to command. People used to pay more than the gold price for old SGBs because they thought they would get tax-free gains at maturity. Now they do not. So that premium has collapsed. If you are holding secondary market SGBs, you are in the same boat as someone holding gold ETFs. No free lunch.
What does that mean for you? Gold ETFs are now competitive. They also have 12.5% LTCG and they offer better liquidity. You can buy and sell anytime during market hours. SGBs on the secondary market have thinner trading. So if you want gold exposure and you missed the primary issuance, a gold ETF might actually be the simpler choice. Same tax, easier to trade. I know a lot of people loved SGBs for the tax benefit. That benefit is now limited to primary market buyers who hold till maturity.
The 2.5% annual interest on SGBs is still a nice touch. Gold ETFs do not pay that. So if you hold SGBs from the primary market, you get a small income stream on top of the gold price movement. It is not huge, but it is something. Just remember, that interest is taxable. So you will pay tax on it every year. Do not forget to add it to your income tax return.
In my opinion, the message is clear. The government wants you to buy SGBs at issuance and hold them. They do not want a thriving secondary market where people trade them for tax arbitrage. So if you are planning to add gold to your portfolio, watch for the next SGB tranche. Buy at issuance. Hold till maturity. That is the only way to keep the tax-free exit. Otherwise, stick to gold ETFs and accept the 12.5% LTCG. Either way, gold is still a decent diversifier. Just know the rules before you buy.