Clause 35 of the Finance Bill, 2026 seeks to amend section 70 of the Income-tax Act, 2025, which specifies certain transactions that are not regarded as transfer for the purposes of capital gains taxation.
The amendment proposes a clarificatory substitution of section 70(1)(x) relating to capital gains exemption on redemption of Sovereign Gold Bonds (SGBs) issued by the Reserve Bank of India (RBI). The change limits the exemption to original individual subscribers who hold the bonds continuously until maturity, while ensuring uniform applicability across all SGB issuances.
The amendment will take effect from 1 April 2026, i.e., from tax year 2026-27 onwards.
Existing Legal Position
Under the current provisions of section 70(1)(x) of the Income-tax Act, 2025:
- Capital gains arising on redemption of Sovereign Gold Bonds issued by the RBI under the Sovereign Gold Bond Scheme, 2015 are exempt from tax
- SGBs have been issued by the RBI through multiple series notified from time to time, each constituting a separate issuance
However, the provision did not expressly state whether the exemption was confined only to:
- Original subscribers, or
- Also extended to persons acquiring SGBs subsequently
This led to potential ambiguity in interpretation, especially given multiple issuances over time.
What Does Finance Bill 2026 Propose?
Clause 35 proposes to substitute clause (x) of section 70(1) to provide that:
- The capital gains exemption shall apply only where:
- The Sovereign Gold Bond is subscribed to by an individual at the time of original issue, and
- The bond is held continuously by such individual until redemption upon maturity
- The exemption shall apply uniformly to all Sovereign Gold Bonds issued by the RBI from time to time
Meaning of the Proposed Amendment
In practical terms, the amendment clarifies that:
- Original subscription is mandatory for claiming exemption
- Continuous holding till maturity is a statutory condition
- The exemption applies only to individuals, not other categories of investors
- The benefit is available across all SGB series, removing issuance-wise distinctions
The amendment does not introduce a new exemption, but defines and restricts the scope of the existing one.
Rationale for the Amendment
As stated in the explanatory summary:
- SGBs are issued in multiple tranches and series, which created scope for uneven application
- The exemption was intended to incentivise long-term individual investment in gold through SGBs, rather than trading
- The amendment ensures:
- Uniform application across all RBI issuances
- Alignment with the intended policy scope of the exemption
Implications of the Proposed Change
1. Original Individual Subscribers
- Individuals who subscribe to SGBs at the time of original issue and hold them till maturity will continue to enjoy full capital gains exemption
- Their tax position remains unchanged in substance, but is now explicitly protected by statute
2. Secondary Market Acquisitions
- Persons acquiring SGBs otherwise than at original issue will not qualify for the exemption
- Capital gains arising on redemption or transfer of such bonds will be taxable as per applicable provisions
Note: The law does not expressly refer to “secondary market”, but the condition of original subscription necessarily excludes later acquisitions.
3. Importance of Holding Till Maturity
- Any transfer prior to maturity will result in non-availability of the exemption
- Continuous holding becomes a determinative legal requirement
4. Reduced Interpretational Disputes
- Uniform rule across all SGB issuances
- Clear statutory conditions reduce scope for litigation and divergent views
Effective Date
✔ Applicable from 1 April 2026. Applies to tax year 2026-27 and subsequent tax years.
Conclusion
Clause 35 of the Finance Bill, 2026 introduces a precise and clarificatory amendment to the capital gains exemption on Sovereign Gold Bonds. By restricting the exemption to original individual subscribers who hold the bonds continuously until maturity, the amendment aligns the tax benefit with the long-term savings objective of the SGB scheme.
The change does not withdraw the exemption, but clearly defines its boundaries, ensuring consistency, certainty, and faithful implementation of the policy intent.
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