Subscription for Series V of the Sovereign Gold Bond Scheme as announced by the Centre for 2020-21 will be open from August 3-7. For this, the issue price of sovereign gold has been fixed at Rs 5,334 per gram, according to the Reserve Bank of India (RBI).
Sovereign gold bonds are government securities and are a substitute for holding physical gold. The sovereign gold bond scheme was launched in November 2015 with an objective to reduce the demand for physical gold and shift a part of the domestic savings — used for the purchase of gold — into financial savings.
The issue price (the price at which the issuer sells the bonds) which in this case is Rs 5,334 per gram of gold, will have to be paid to the Reserve Bank of India, and will be redeemed in cash whenever it matures. Sovereign gold bonds will have a tenure of eight years, with an exit option after the fifth year to be exercised on the interest payment dates.
The issue price for the bonds in series IV was Rs 4,852 per gram of gold.
The RBI said that the nominal value of the bond was based on the average closing price of gold with 999 purity “of the last three business days of the week preceding the subscription period, i.e. July 29 – July 31, 2020”. This, it said, works out to Rs 5,334 per gram of gold.
Additionally, the RBI said that the government is offering a discount of Rs 50 per gram for investors who are applying online and the payment for their application is done so online. For such investors, the issue price of gold bonds will be Rs 5,284.
The bonds are restricted for sale to resident individuals, Hindu Undivided Families (HUFs), trusts, universities and charitable institutions.
In April, the RBI had announced that the government would be issuing sovereign gold bonds in six tranches, of which this is the fifth.
The minimum permissible investment will be 1 gram of gold and the maximum limit of subscription shall be 4 kg for individuals, 4 kg for HUF and 20 kg for trusts and similar entities per fiscal.
The gold bond will be sold through banks (except small finance banks and payment banks), Stock Holding Corporation of India (SHCIL), designated post offices, and recognised stock exchanges (NSE and BSE). Those who want to apply for the scheme online can do so through the website of their bank and will require their PAN card for the same.
The redemption of the bond will also be in rupees based on three days average price of gold before you request to exit the investment. As it is being sold by the Reserve Bank of India, the bonds come with assured return of 2.5% annually.
The investor will be informed one month before maturity of the bond. The interest and redemption proceeds will be credited to the bank account given by the customer at the time of buying the bond.
These bonds do not attract capital gains tax if they are not redeemed until maturity. If the holder chooses to sell it off before maturity, then they will be taxed as per slab rates and long-term capital gains are taxed at 20.8% after indexation. Indexation is used to adjust the price at which you purchased an investment to reflect the impact of inflation on it.
However, if gold bonds are listed on the exchange, then the long term referred to here will be considered as one year. Interest earned on sovereign gold bonds every year is taxed as per your slab rates.
RBI has said that the request for premature redemption (exiting the investment before the maturity date) can only be entertained if the investor approaches the concerned bank/post office at least one day before the interest payment date. The proceeds will then be credited to the customer’s bank account.
The subscription for Series VI will be between August 31 and September 4, 2020.