The Reserve Bank of India (RBI) has announced the premature redemption price for the Sovereign Gold Bond (SGB) Scheme, Series I of 2020-21, at Rs 9,600 per unit. The redemption date is scheduled for April 28, 2025, marking the end of the five-year lock-in period for this series. SGBs offer investors an option to exit after completing five years from the date of issuance, although the overall maturity period is eight years.

The redemption price is calculated based on the average closing gold price of 999 purity over the preceding three business days. The RBI also announced premature redemption prices for two other SGB series, Series IV of 2017-18 and Series II of 2018-19, which became eligible for early redemption on April 23, 2025.

Sovereign Gold Bonds are a popular investment option for individuals looking to gain exposure to gold without the challenges of physical storage. The scheme provides an annual interest rate of 2.5% and potential capital growth tied to gold prices. SGBs have an eight-year term, with the option for investors to redeem them early starting from the fifth year. Early redemption is permitted only on particular interest payment dates, which occur twice a year.

Investors should note that if they miss the early redemption window, they will not lose their investment, and the bond will continue to accrue an annual fixed interest rate of 2.5% until it matures in eight years. They also have the option to sell the bonds in the secondary market at current market prices.

In terms of tax implications, the interest earned on SGBs is taxable under the Income-tax Act, 1961. However, if investors opt for premature redemption through the RBI’s designated window, the proceeds are fully exempt from Long Term Capital Gains (LTCG) tax. If they choose to sell SGBs in the secondary market, the gains will attract capital gains tax. Investors aiming to maximize tax efficiency should either redeem SGBs during the RBI’s premature exit window or hold them until the full maturity period of eight years.

To minimize tax liabilities, investors should choose the right exit option. They can either redeem their SGBs during the premature exit window or hold them until maturity. The maturity proceeds are not treated as a transfer under the capital gains provisions, making them entirely tax-exempt. By understanding the tax implications and choosing the right exit option, investors can make the most of their Sovereign Gold Bond investment.