Important news for taxpayers: Concealing income from gold bonds could prove costly; find out how to report it in your ITR..

The process of filing Income Tax Returns (ITR) for Assessment Year 2026-27 (Financial Year 2025-26) is in full swing. If you have invested in the Reserve Bank of India’s (RBI) Sovereign Gold Bond (SGB) scheme and earned returns from it, this information is crucial for you. Many taxpayers fail to correctly report income earned from SGBs while filing their ITR, leading to subsequent tax notices from the Income Tax Department. Let us understand the tax rules applicable to Sovereign Gold Bonds and how you should report them in your return.

Earnings from SGBs: Understanding the tax rules in two parts
Investors earn returns from Sovereign Gold Bonds in two ways: first, through annual interest payments, and second, through capital gains realized when the bond's value appreciates. The tax rules for both are entirely different:

1. Tax on annual interest income
Investors receive interest on Sovereign Gold Bonds at a rate of 2.5% per annum, which is credited directly to their bank accounts twice a year (on a half-yearly basis).
Tax Rule: This interest is fully taxable. It is added to your annual income and taxed according to your applicable tax slab.

Where to report in ITR: It is mandatory to declare this income under the head ‘Income from Other Sources’ in the ITR form.

Important Note: The RBI does not deduct any TDS (Tax Deducted at Source) on this interest; consequently, many investors overlook reporting it in their returns. This is a significant error, as the transaction is recorded in your AIS (Annual Information Statement).

2. Tax on Maturity and Capital Gains
SGBs are considered an excellent investment from a tax perspective, though certain conditions apply:

On 8-year maturity: If you hold the Sovereign Gold Bond for the full 8-year maturity period, the entire profit (capital gain) realized at the time of redemption is 100% tax-free. You do not have to pay a single rupee of tax on it.

Pre-mature redemption: Individual investors are also exempt from capital gains tax if they opt for pre-mature redemption directly with the RBI after 5 years.

Sale on stock exchanges: If you sell your SGB on a stock exchange (NSE/BSE) before the completion of the 8-year term, the profit will not be tax-free. Depending on the holding period, it will attract either Short-Term Capital Gains (STCG) tax or Long-Term Capital Gains (LTCG) tax.

How to report income from SGBs
Details of all SGB-related transactions must be reported in the relevant schedules of ITR-2, ITR-3, or ITR-4, as applicable. The annual interest of 2.5% earned on SGBs is fully taxable and must be reported under ‘Schedule OS’ (Income from Other Sources).

This interest is taxed according to the investor's applicable income tax slab. Since government securities are exempt from TDS (Tax Deducted at Source) under Section 193 of the Income Tax Act, no tax is deducted at source on this interest.

Reporting capital gains depends on how the bond is sold or redeemed. If the original subscriber redeems the bond with the Reserve Bank of India (RBI) upon maturity, no capital gains tax will be levied under the rules applicable for the Assessment Year 2026-27.

Avoid these 3 mistakes when filing your ITR
**Not cross-checking AIS and TIS:** Be sure to download your Annual Information Statement (AIS) before filing your return. It already reflects the interest paid to you by the RBI. If there is a discrepancy between the figures in your ITR and AIS, you could receive an automated notice.

**Failing to disclose bonds sold on the exchange:** If you sold Sovereign Gold Bonds (SGBs) via the stock market prior to maturity, declare them in the ‘Capital Gains’ schedule of your ITR. Calculate the gains by availing the benefits of appropriate indexation or tax rates applicable to listed securities.

**Not reporting the tax-free maturity amount:** Even though the proceeds received upon the completion of the 8-year tenure are entirely tax-free, you should still report them under the ‘Exempt Income’ schedule of the ITR to ensure the Income Tax Department has an accurate record of your total assets and earnings.

**Ensure compliance with the rules**
In this era of digital tracking, the Income Tax Department possesses precise information regarding every financial transaction you make. Therefore, by declaring the interest earned on Sovereign Gold Bonds under ‘Income from Other Sources’ and reporting maturity gains in accordance with the rules, you can avoid tax-related complications and penalties. If you hold multiple bond series, it is advisable to reconcile your bank statements with your SGB holding certificates before filing.

**Budget 2026 changes to take effect next year**
A significant change introduced in the 2026 Budget is that the capital gains exemption upon the redemption of Sovereign Gold Bonds will be available only to ‘original subscribers’—those who purchased or invested in the bonds at the time of their issuance by the RBI and held them until maturity.

Disclaimer: This content has been sourced and edited from TV9. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.