October 7, 2022

Lukmaan IAS

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SOVEREIGN GOLD BOND SCHEME 2021-22

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THE CONTEXT: In terms of Government of India Notification, Sovereign Gold Bonds 2021-22 (Series IV) will be opened for the period July 12-16, 2021 with Settlement date July 20, 2021.

Analysis

  • The issue price of the Bond during the subscription period shall be Rs 4,807 (Rupees Four thousand eight hundred seven only) – per gram.
  • The Government of India in consultation with the Reserve Bank of India has decided to allow discount of Rs 50 (Rupees Fifty only) per gram from the issue price to those investors who apply online and the payment is made through digital mode.
  • For such investors the issue price of Gold Bond will be Rs 4,757 (Rupees Four thousand seven hundred fifty seven only) per gram of gold.

THE FEATURES OF THE BOND ARE AS UNDER:

Item Details
Product name Sovereign Gold Bond 2021-22
Issuance To be issued by Reserve Bank of India on behalf of the Government of India.
Eligibility The Bonds will be restricted for sale to resident individuals, HUFs, Trusts, Universities and Charitable Institutions.
Denomination The Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
Tenor The tenor of the Bond will be for a period of 8 years with exit option after5th year to be exercised on the next interest payment dates.
Minimum size Minimum permissible investment will be 1 gram of gold.
Maximum limit The maximum limit of subscription shall be 4 KG for individual, 4 Kg for HUF and 20 Kg for trusts and similar entities per fiscal (April-March) notified by the Government from time to time. A self-declaration to this effect will be obtained. The annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchased from the Secondary Market.
Payment option Payment for the Bonds will be through cash payment (up to a maximum of `20,000) or demand draft or cheque or electronic banking.
Issuance form The Gold Bonds will be issued as Government of India Stock under GS Act, 2006. The investors will be issued a Holding Certificate for the same. The Bonds are eligible for conversion into demat form.
Redemption price The redemption price will be in Indian Rupees based on simple average of closing price of gold of 999 purity, of previous 3 working days published by IBJA Ltd.
Sales channel Bonds will be sold through Commercial banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices (as may be notified) and recognized stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange, either directly or through agents.
Interest rate The investors will be compensated at a fixed rate of 2.50 percent per annum payable semi-annually on the nominal value.
Collateral 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.
Tax treatment The interest on Gold Bonds shall be taxable as per the provision of 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 term capital gains arising to any person on transfer of bond.
Tradability Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.
SLR eligibility Bonds acquired by the banks through the process of invoking lien/hypothecation/pledge alone, shall be counted towards Statutory Liquidity Ratio.

SIGNIFICANCE OF SOVEREIGN GOLD BOND SCHEME

  1. Firstly, these gold bonds allow you to get a lower price than physical gold when applied online.
  2. Secondly, you get a fixed interest rate on these gold bonds.
  3. Thirdly, gold bonds have no holding or storage cost.
  4. Fourth, these bonds carry a sovereign guarantee since they are issued by the government.
  5. Fifth, another benefit of sovereign gold bond scheme is that there is no capital gains tax at maturity or redemption for individual investors. Also, there is indexation benefit if the same is transferred before maturity for non-individual investors. The interest earned is taxable. There is no TDS either during redemption or interest payout.
  6. Sixthly, a sovereign gold bond is highly liquid. This is because the investment can be used as collateral for loans.
  7. Lastly, It will reduce pressure on the Current Account side of Balance Of Payment
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