Finance Minister Nirmala Sitharaman’s Union Budget 2026 speech has sparked widespread concern among Sovereign Gold Bond (SGB) investors with a proposed rule change that strips capital gains tax exemption for bonds bought on the secondary market.
Under the new provision, effective April 1, 2026, only original subscribers who hold their SGBs until maturity will retain the full tax exemption on interest income and long-term capital gains. Secondary market buyers—those purchasing existing SGBs from other investors through stock exchanges—will lose this benefit entirely, facing taxation on both interest and capital gains as per their holding period.
This shift ends a key attraction of SGBs that had drawn retail and institutional investors to the secondary market, where bonds often trade at premiums or discounts to their net asset value (NAV). Previously, all holders enjoyed indexation benefits and tax-free gains at maturity (8 years), making SGBs a popular rupee-cost averaging alternative to physical gold.
Market analysts warn the change could dampen secondary market liquidity and trading volumes, potentially widening bid-ask spreads and reducing price discovery efficiency. Gold ETFs and digital gold platforms may see inflows as investors pivot away from the now-tax-disadvantaged SGB secondary route.
The move aligns with the government’s fiscal consolidation push but has drawn criticism from wealth managers who argue it penalises long-term wealth creators without addressing genuine tax evasion concerns. SGB investors holding pre-April 2026 secondary purchases appear grandfathered under old rules, though clarity on transitional provisions awaits detailed Budget documents.
