Sovereign Gold Bonds (SGBs) & Retrospective Taxation
Context:
The Union Budget 2026 has introduced a retrospective tax on Sovereign Gold Bonds (SGBs).
Starting April 2026, a Long-Term Capital Gains (LTCG) tax of 12.5% will be levied on gains made via the purchase of SGBs.
About Sovereign Gold Bonds (SGBs):
SGBs are government securities denominated in grams of gold.
Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.
The Bond is issued by Reserve Bank on behalf of Government of India.
The scheme was introduced in 2015-16 to mobilize gold held by households and reduce imports.
Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB.
Eligible investors include individuals, HUFs, trusts, universities and charitable institutions.
Investors bought "paper gold" and were promised redemption in cash based on current gold prices.
The annual issuance of gold bonds was stopped in 2024.
The Controversy:
Retrospective Nature:
The new tax is termed "retrospective" because it alters the terms for investors who entered the scheme under the promise of tax-free returns.
Breach of Trust:
Critics argue this violates the "contract" between the citizen and the state ("What is mine is mine; what is yours is also mine").
Economic Impact:
The move is compared to the 2012 retrospective taxation and the 2015 Model Bilateral Investment Treaty (BIT), both of which are cited as reasons for dampening private investment and foreign investor confidence due to policy unpredictability.