Benefits of Sovereign Gold Bonds and How to Gift SGB

22 Dec 2022|

3 min read |

by ICICI Securities Team

Introduction to Sovereign Gold Bonds

Sovereign gold bonds issued by the government can also be gifted to your relatives, friends or immediate family members. With Indian investors having an obsession for gold, many parents are preferring gifting sovereign gold bonds to their children rather than physical gold, which is more cumbersome to manage. We address the process flow and also the tax implications when you give sovereign gold bond as gift?

One of the good gifting ideas is to gift SGBs this festive season with a long festive season stretching from September to December. It is useful, value creating and also a good proxy for physical gold. By gifting a sovereign gold bond to your near and dear ones, you allow them to participate in the movement of gold prices without the hassles of holding and storing physical gold.

How the Sovereign Gold Bond Scheme Makes a Comeback During Festive Season

Festive seasons see buying interest in gold and gold bonds for holding and for gifting them to near and dear ones. After all, here is a government guaranteed product linked to the price of gold. It offers the benefits of investing in gold without the hassles of safety, storage and insurance. In addition, the 2.5% interest payable semi-annually is an added bonus for investors. In festive season, when Indians normally splurge on physical gold, SGB option is adding a lot of value to investors.

Benefits of Investing in Sovereign Gold Bonds

Sovereign gold bonds (SGB) bring a number of benefits for investors.

The SGB is an assured return product, so it gives stability to the portfolio. It has been empirically proven that 10% to 15% exposure to gold makes the overall portfolio less volatile in troubled times.
The SGB has the dual advantage. It is pegged to the value of gold, so the value of the bond appreciates gradually with the price of gold. However, it also pays 2.5% assured interest.
SGBs save you the hassles of physical gold. There is no need to worry about safety, storage, insurance, transportation, making charges etc. SGB is a non-physical investing in the form of gold bond certificates issued by RBI or as credit to existing demat account.
SGBs are free of capital gains if held for the full tenure of 8 years. That is a unique advantage for long term investors.

Sovereign Gold Bond as a Gift Option

One of the big questions investors often ask is can sovereign bonds be gifted and if so how?

As per the sovereign gold bonds rule book, SGBs can be gifted / transferred to a relative or friend or anybody else who fulfils the eligibility criteria. We discuss eligibility criteria in the next paragraph. The Sovereign Gold Bonds are transferable in accordance with provisions of the Government Securities Act 2006 and the Government Securities Regulations 2007. However, such transfers have to happen before maturity by execution of an instrument of transfer which is available with the issuing agents. Sovereign bonds held in demat form or in certificate form can both be transferred.

Let us come to what is meant by eligible persons to whom such SGBs can be transferred. Such eligible persons must be persons resident in India as defined under the Foreign Exchange Management Act (FEMA), 1999. It must be noted here that non-resident Indians (NRIs) and foreign nationals are not eligible to invest in SGBs. Eligible investors include individuals, HUFs, trusts, universities and charitable institutions. In the case of individuals with subsequent change in residential status from resident Indian to non-resident Indian (NRI), may continue to hold such SGB till early redemption or maturity.

What are the tax implications of gifting of SGBs? Let us look at the transferor of SGB. Since, Gift Tax Act was abolished the sender is not liable to pay any tax on gifts as these are not classified as transfer. What about the recipient of the gift? A gift of any movable asset (including SGB) is tax-free up to market value of Rs50,000. Beyond that it will be taxed in the hands of the recipient as Income from Other Sources. However, tax is fully exempt if the recipient is a relative (sibling, spouse, linear ascendant / descendant). Also gifts on marriage and inheritance are fully exempt.

How to Invest in Sovereign Gold Bond

It is today possible to invest in sovereign gold bonds either through online or offline mode. Forms to apply for SGBs in physical mode can be procured from scheduled banks, post offices, SHCIL or downloaded from the website of RBI. A much easier way is digital application if you have an internet trading or internet banking account. A discount of Rs50 per gram is also applicable for digital applications to SGBs.