The Reserve Bank of India Thursday announced the issue of Sovereign Gold Bonds (SGBs), on behalf of Government of India every month, from June 2019 to September 2019.
“The bonds will be restricted for sale to resident individuals, HUFs, trusts, universities and charitable Institutions,” the RBI said in a notification Thursday. “The bonds will be denominated in multiples of gram of gold with a basic unit of 1 gram. The tenor of the bond will be for a period of 8 years with exit option after 5th year to be exercised on the interest payment dates. Minimum permissible investment will be 1 gram of gold,” it said.
SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold and investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.
“The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc,” the RBI stated.
The bonds bear interest at the rate of 2.50 per cent (fixed rate) per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.
According to the RBI, the maximum limit of subscription will be 4 kg for individual, 4 kg for HUF and 20 kg for trusts and similar entities per fiscal (April-March) notified by the Centre from time to time. Bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time.
“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 is not applicable on the bond. However, it is the responsibility of the bond holder to comply with the tax laws,” the banking regulator said.
The bonds will be sold by scheduled commercial banks (except small finance banks and payment banks), Stock Holding Corporation of India Limited, designated post offices and recognised stock exchanges like National Stock Exchange and BSE.
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