You pay different taxes on G-secs depending on the type and how long you hold them.
Sovereign Gold Bonds (SGBs) taxation
- If held until maturity (8 years) or redeemed after 5 years: No capital gains tax applies.
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If sold in the secondary market:
- More than 12 months: 12.5% Long Term Capital Gains (LTCG) tax applies
- Within 12 months: Tax applies according to income tax slab rates
- Interest payments: SGB interest is taxed according to income tax slab rates.
Bonds and State Development Loans (SDL) taxation
- Interest income: Interest credited to the bank account is taxed as "income from other sources" according to income tax slab rates. No Tax Deducted at Source (TDS) applies on G-sec interest payments.
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Capital gains from price appreciation:
- Long Term Capital Gains (held more than 12 months): 12.5% flat rate
- Short Term Capital Gains (held within 12 months): Tax applies according to income tax slab rates
T-bills taxation
T-bills are bought at a discount and redeemed at full value at maturity. The profit is considered STCG and taxed according to the income tax slab rates.