Budget 2026 changes SGB tax rules, ends blanket capital gains exemption

When SGB capital gains will remain tax-free under new Budget rules

If you invest in Sovereign Gold Bonds (SGBs) to save tax and gain exposure to gold, the Union Budget 2026–27 brings an important clarification you should be aware of.

 

In her Budget announcement on February 1, Nirmala Sitharaman proposed tightening the conditions under which capital gains exemption on SGBs will be available.

 

Under the new proposal, capital gains on Sovereign Gold Bonds will be tax-exempt only if:

 

• You are an individual investor
• You subscribed to the bond at the time of original issue, and
• You hold the bond continuously until redemption on maturity

 

In simple terms, if you buy SGBs directly from the government at issuance and stay invested for the full tenure (usually eight years), your capital gains at maturity will continue to remain completely tax-free, as before.

 

 

However, if you purchase SGBs from the secondary market or exit before maturity, the exemption will no longer apply, and capital gains tax will be charged as per applicable rules.

 

The Budget also proposes that this exemption framework will apply uniformly to all Sovereign Gold Bond issuances by the Reserve Bank of India, removing any ambiguity across different tranches.

 

"It is proposed to provide that the exemption from capital gains tax  in respect of Sovereign Gold Bonds shall be available only where  such bonds are subscribed to by an individual at the time of  original issue and are held continuously until redemption on  maturity,   It is also proposed to provide that this exemption applies  uniformly to all issuances of Sovereign Gold Bonds by the Reserve  Bank of India," said the FM. 

 

The move primarily targets short-term trading and arbitrage in SGBs, ensuring that the tax exemption rewards genuine long-term investment rather than frequent buying and selling. SGBs remain tax-efficient—but only ifyou buy them at issue and hold them till maturity.  The Budget now proposes a  change. The capital gains exemption at maturity will apply only when the investor bought the SGB in the primary issue directly from RBI and held that same bond till redemption. If an investor bought the SGB from the secondary market, the exemption will not apply. When they redeem at maturity after April 1, 2026, the price difference will be taxed as capital gains. 

The End of Tax-Free Secondary SGBs  Ankit Jain, Partner, Ved Jain & Associates decoded the new tax tweak: 

 

With gold prices hitting record highs recently, investors have been flocking to Sovereign Gold Bonds (SGBs) as the ultimate "safe haven" asset. However, the Finance Bill 2026 just introduced a significant curveball that changes the math for anyone buying these bonds on the stock exchange.

 

1. The "Original Subscriber" Rule

Under the previous regime, anyone holding an SGB until maturity enjoyed a tax-free exit on capital gains, regardless of where they bought it. The New Income Tax Act, 2025, changes this fundamentally: 

Restriction: The capital gains tax exemption at redemption is now only available to the original subscriber.

Strict Requirement: You must have subscribed to the bonds during the initial RBI issue and held them continuously until maturity to claim the exemption.

 

2. Impact on Secondary Market Buyers

If you have been buying SGBs from the stock exchange (secondary market) to take advantage of the tax-free maturity, the rules have changed:

No More Exemption: Gains upon  redemption for secondary market buyers will now be treated as taxable capital gains.

Uniform Application: This rule applies across all RBI bond series, leaving no room for ambiguity.

 

3. Why the Crackdown?

The government’s intent is clear: they want to reward long-term primary investors rather than those trading bonds in the secondary market to secure tax-free exits. 

 

The takeaway: With gold prices soaring, SGBs are still a great hedge, but the "tax-free" charm has now been restricted to primary investors only. If you’re buying from the exchange, factor in the new tax cost!  "From a legal and tax advisory perspective, this measure underscores the importance of holding SGBs to maturity to avail the capital gains exemption and highlights the government’s emphasis on promoting stable, long-term investment in sovereign instrument"," said Rajesh Sivaswamy, Senior Partner, King Stubb & Kasiva, Advocates and Attorneys. 

What is the policy intent?

 

"The FM’s proposal for restricting capital gain exemption on SGBs to original individual subscribers,who hold the bonds continuously until maturity, reinforces the policy intent of SGBs as a sovereign-backed savings instrument rather than a tax-efficient trading asset. Interestingly, this change has been introduced prospectively, which may provide some arbitrage, albeit limited, to taxpayers who have acquired SGBs from secondary market," said Kunal Savani, Partner, Cyril Amarchand Mangaldas.