The premature redemption price for Sovereign Gold Bond (SGB) 2016-17 Series II has been revealed by the Reserve Bank of India (RBI). The premature redemption will be done on March 30, 2024. The premature redemption rate for the same is Rs 6,601 per unit of sovereign gold bond (SGB).

The SGB redemption price is calculated on the simple average of the closing gold price of 999 purity of the previous three business days from the date of redemption as published by the India Bullion and Jewellers Association (IBJA). Therefore, the SGB redemption price is based on the simple average of the closing gold price for the week of March 18-22.

It is to be noted that though the tenor of the SGB is 8 years, early encashment/redemption of the bond is allowed after the fifth year from the date of issue on coupon payment dates. The bond are tradable on Exchanges, if held in demat form. It can also be transferred to any other eligible investor.

“Though the tenor of the bond is 8 years, early encashment/redemption of the bond is allowed after the fifth year from the date of issue on coupon payment dates,” said the RBI in a frequently asked question (FAQ) about SGB on its website.

An investor must apply for premature redemption within a specific annual deadline after 5 years of investment. Failure to tender the SGB to the RBI within this timeframe will result in the inability to redeem it in the same year.

How to prematurely withdraw SGBs

For premature redemption of SGBs, investors can approach the concerned bank/Stock Holding Corporation of India Limited (SHCIL) offices/post office/agent 30 days before the coupon payment date.

RBI has said requests for premature redemption can only be entertained if the investor approaches the concerned bank/post office at least one day before the coupon payment date. The proceeds will be credited to the customer’s bank account provided at the time of applying for the bond.

The proceeds are credited to the customer’s bank account provided at the time of applying for the bond.

There is a 10-day gap from the last date of premature redemption and the interest payment.

Tax on premature withdrawal

RBI says interest on the Bonds will be taxable as per the provisions of the 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 terms capital gains arising to any person on transfer of bond.

TDS: TDS is not applicable on the bond. However, it is the responsibility of the bond holder to comply with the tax laws.

SGB vs GMS

The Centre introduced the first SGB in November 2015, and the initial two issues have matured, providing investors with high tax-free returns. The government had also floated the Gold Monetisation Scheme (GMS) ari=ound the same time, but it failed to gain traction.

So far, a total of 147 tonnes worth of SGBs have been sold, while the response to GMS is only 10 per cent of that. Both schemes aimed to reduce the import bill of gold, which has been exerting pressure on the rupee in the foreign exchange market.