RBI Sets ₹14,614 Premature Redemption Price for SGB 2020-21 Series VII; Gain Now Taxable
The Reserve Bank of India has fixed ₹14,614 per unit as the price for the premature redemption of Sovereign Gold Bond 2020-21 Series VII, through its press release 2026-2027/1344 dated 16 October 2026. The tranche was issued on 20 October 2020, and the scheme permits premature redemption after the fifth year on an interest payment date; because 20 October 2026 is a holiday, this October's redemption was paid out on 19 October 2026. The price is the simple average of the IBJA closing price of 999-purity gold on 14, 15 and 16 October 2026, as the scheme notification F.No. 4(4)-B(W&M)/2020 dated 9 October 2020 requires.
Against an issue price of ₹5,051 per gram, or ₹5,001 for investors who applied online and paid digitally, the redemption returns about 2.9 times the money put in six years ago, before counting the 2.50 per cent annual coupon. The RBI press release of 9 October 2020 fixed those issue prices for the 12 to 16 October 2020 subscription window.
What makes this tranche different from the premature redemptions of earlier years is the tax. Every investor who took the 19 October 2026 exit is redeeming in Tax Year 2026-27, the first year governed by the Income-tax Act, 2025, and the Finance Act, 2026 has narrowed the exemption for gold bonds to redemption on maturity. A premature redemption, even one made through RBI's own window after the five-year lock-in, now produces a taxable long-term capital gain.
Why a premature redemption under section 70(1)(x) is no longer exempt
Under section 47(viic) of the Income-tax Act, 1961, any redemption of a sovereign gold bond by an individual was not treated as a transfer, so no capital gain arose whether the bond was redeemed at maturity or in a premature window. Section 70(1)(x) of the 2025 Act carried that position into the new law as originally enacted. The Finance Bill, 2026, at clause 35, rewrote the clause so that the carve-out from section 67 applies to redemption of a bond issued under the Sovereign Gold Bond Scheme, 2015 or any later scheme only if the bond is held by an individual from the date of original issue till maturity. Section 1(2) of the Bill brings the amendment into force on 1 April 2026.
The Income Tax Department's FAQs on Budget 2026 spell out the two conditions in questions 4 to 7 of the chapter on gold bonds. The exemption is confined to bonds subscribed by the individual at original issue, so a bond bought on the exchange or received by transfer never qualifies. It is also confined to redemption on maturity: the answer to question 5 states that premature redemption, even after the prescribed lock-in period is over, is not eligible. Question 7 reduces the position to four cases, and for Series VII holders only the first one still delivers an exemption, two years from now.
| How the bond was acquired | When it is redeemed | Tax position from Tax Year 2026-27 |
|---|---|---|
| Subscribed at original issue by an individual | On maturity, 20 October 2028 for Series VII | Exempt under section 70(1)(x) |
| Bought on the exchange or received by transfer | On maturity | Taxable capital gain |
| Subscribed at original issue by an individual | Premature window, including 19 October 2026 | Taxable capital gain |
| Bought on the exchange or received by transfer | Premature window | Taxable capital gain |
The amended clause speaks only of an individual. A Hindu undivided family, a trust or a company that holds Series VII was never inside the exemption and stays outside it. The transition FAQ on the Income-tax Act, 2025 explains why a redemption received in October 2026 is reported under the new Act and its section numbers rather than under the 1961 Act, even though the bond was bought under the old regime.
Computing the gain on a Series VII redemption
The redemption is a transfer of a listed security held for six years, so the gain is long-term and section 197(1)(b) of the 2025 Act taxes it at 12.5 per cent, with no indexation. The full consideration is ₹14,614 per gram and the cost of acquisition is the price actually paid at issue, ₹5,051 or ₹5,001 per gram. The gain is therefore ₹9,563 per gram for an offline subscriber and ₹9,613 for an online one. The text of section 197 also lets a resident individual whose other income is below the basic exemption limit set the shortfall against the gain before the 12.5 per cent rate is applied, which matters for retired holders with small pensions.
As an illustration, take an individual who applied online in October 2020 for 40 grams at ₹5,001, an outlay of ₹2,00,040, and redeemed the whole holding on 19 October 2026. The redemption proceeds are 40 × ₹14,614 = ₹5,84,560. The long-term capital gain is ₹5,84,560 − ₹2,00,040 = ₹3,84,520. Tax at 12.5 per cent is ₹48,065, and the 4 per cent health and education cess adds ₹1,923, so the outgo is about ₹49,988 before any surcharge. The investor keeps roughly ₹5,34,572 from the redemption itself. The final half-yearly coupon of 1.25 per cent on the ₹2,00,040 initial investment, ₹2,500.50, is paid with the redemption proceeds and is taxed separately as income from other sources at the slab rate, as all twelve coupons over the six years have been.
No tax is deducted at source on either the coupon or the redemption; the RBI's FAQ on the Sovereign Gold Bond Scheme leaves compliance to the holder. The gain has to be reported in the return for Tax Year 2026-27, and the tax on it belongs in the remaining advance tax instalments of the year rather than in self-assessment tax next July.
Redeem through RBI, sell on the exchange, or wait for 20 October 2028
For an individual who subscribed at issue and still holds Series VII, the decision now runs on three tracks. Redeeming in a premature window gives the IBJA-linked price with no bid-ask spread, but the whole gain is taxed at 12.5 per cent. Selling the demat units on the exchange is also a taxable transfer, and the seller gets the market quote on the day rather than the IBJA three-day average, so the exemption is lost without the certainty of the RBI price. Holding until maturity on 20 October 2028 keeps the exemption intact, collects four more half-yearly coupons, and carries the gold price risk for two more years. The tax saved by waiting is, on the illustration above, close to ₹50,000 on a holding that would be worth ₹5.85 lakh at today's price.
An investor who bought Series VII on the exchange after issue has no such choice. The maturity redemption is as taxable for them as the premature one, and the only question is timing; their cost of acquisition is the exchange purchase price, not the 2020 issue price, so the gain is correspondingly smaller.
The next premature window for Series VII falls on the coupon date of 20 April 2027. Under the scheme FAQ, a holder has to lodge the request with the bank, post office, SHCIL office or agent through which the bond was bought, and the RBI will announce the redemption price for that date from the IBJA average of the three preceding business days. Practitioners drawing up the Tax Year 2026-27 return for clients who redeemed on 19 October 2026 should keep the original allotment advice or demat statement showing the October 2020 issue price, because that document now decides whether the exemption at maturity will be available at all.
Official source: View the official source document
