Alright, right here we go!
I’ve been attempting to wrap my head across the subject of SGB taxation for a very long time, although I don’t personal any SGB.
I’ve been studying many articles/posts/threads/FAQs and what not on SGB’s taxation. Extra exactly, when the capital positive factors tax arising on redemption are exempt.
Sadly, after going by way of a lot of the contents on this subject, I couldn’t arrive at a conclusion as to when the SGBs are totally exempt from capital positive factors tax. It is because, there are contradicting views on this, some 1 2 say that redemption with RBI at any time after 5 years (untimely redemption) are tax-exempt, whereas others 3 4 say that the capital positive factors are exempt provided that they’re held until maturity and redeemed on the finish of 8 years.
So, there appears to be no unanimous opinion/interpretation as to when the capital positive factors arising on SGB redemption are exempt from tax.
I hoped that the RBI’s FAQs on this subject would supply some indeniable readability, nevertheless, the solutions appear ambiguous, because it merely states “The capital positive factors tax arising on redemption of SGB to a person has been exempted”.
IMO, the one clue right here is the phrase redemption (which i interpret as redemption on maturity i.e., 8 years). I say this as a result of, the FAQs appear to distinguish redemption from untimely redemption.
They may have talked about that the capital positive factors tax arising on each redemption and untimely redemption are exempt from tax, however they didn’t. IMO the phrase redemption can’t be thought of to additionally embody untimely redemption in its definition.
Anyway, since I used to be not getting any readability on this subject, i made a decision to succeed in out to RBI’s SGB group which was created to handle any queries on SGB, and that is the reply i obtained.
As per their reply, it’s sure that the capital positive factors tax on redemption of SGBs are exempt provided that they’re held until maturity (8 years), and subsequently any untimely redemption with RBI between years 5 to eight could be topic to tax.
PS:
On the subject of OP’s question of shopping for from the secondary market and holding for a time period lower than 8 years, though redemption with RBI on maturity is exempt from tax, i imagine such exemption is accessible provided that the particular person is the first investor of the SGB, who subscribed to the SGB immediately with RBI. I say this as a result of, the holding interval too issues, anybody shopping for from the secondary market may have a holding interval of lower than 8 years, the phrase held until maturity usually implies that you simply purchased it on day one and held until the due date, and solely the first investor will get the certificates of holding.
IMO, anybody buying from the secondary market is not going to be eligible for any tax exemption, as a result of the holding interval isn’t one thing that will get transferred from one particular person to a different, we have to take into account the holding interval of every particular person to find out if the bonds have been held for 8 years. Shopping for from secondary market and redeeming on the due date/maturity date doesn’t imply the bonds have been held until maturity, they’re merely redeemed on maturity, not held until maturity.
We are able to’t simply maintain a bond for any interval lower than 8 years and nonetheless take pleasure in tax exemption just by being the final particular person holding the bonds and redeeming it with the RBI.
Sadly, since i didn’t learn OP’s question whereas drafting the mail to RBI, I couldn’t embody this question in my mail.
