Jigar M. Patel
International Tax Attorney
Taxability of Gains arising from SGBs purchased from Secondary Market
Query: I purchased Sovereign Gold Bonds (SGBs) from the secondary market in 2023. This SGB series, originally issued in 2017, is now maturing after its 8-year tenure in 2025. I understand that maturity proceeds of investment in SGB are free from tax. However, I am not sure whether I can also enjoy this tax exemption, since I was not the original subscriber of these Bonds. Can you please guide me in regard to my tax liability?
Reply: Section 47(viic) of the Income-tax Act provides that any transfer of SGB by way of redemption, by a taxpayer being an individual, shall not be treated as a transfer. In view of the same, the capital gains arising on the maturity of SGB enjoy full exemption and do not attract any liability to tax.
On a careful reading of the said section, it is quite clear that the exemption from tax is linked with the gains arising with reference to the maturity proceeds on redemption of the SGB. However, there is no attached condition as to how these bonds were acquired, whether by way of original subscription or through purchase from the secondary market.
In the above context, two aspects need to be noted. SGBs held by any entity, other than an individual, such as an HUF, Trust etc. would not enjoy exemption on redemption of the investment. Similarly, in case of an individual, exemption is available only on redemption upon maturity and not in respect of sale proceeds received from secondary market sale. In both such cases, the provisions in regard to taxability of capital gains will be duly attracted and tax will be determined accordingly.
Judicial Ruling in support of Claim for Tax Rebate against Tax on Equity STCG
Query: In AM Tax Clues on June 16, 2025, you had opined that considering the amendment to Section 87A having been made applicable only from assessment year 2026-27, the claim for tax rebate on STCG and LTCG taxable u/s. 111A and 112 should stand impliedly allowed for the two assessment years 2024-25 and 2025-26. In the processing of my ITR for AY 2024-25, CPC has rejected my identical claim and I am in appeal. Is there any judicial ruling on this issue, which I can rely on?
Reply: You have raised your query at an opportune time. In fact, just last week (on August 12, 2025), the Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has delivered a very well-reasoned speaking order on this very point in the favour of taxpayers. In the case of ‘Jayshreeben Jayantibhai Palsana v. Income-tax Officer’ (reported in 177 taxmann.com 411), the Tribunal held that neither Section 87A nor Section 111A contained any explicit bar that could deny the claim for tax rebate on tax payable on STCG.
The Tribunal observed that when the legislature intended to deny the rebate on special incomes, it did so expressly, as seen in the case of long-term capital gains under Section 112A(6). The amendment in the Finance Act, 2025, which prospectively inserted such a restriction, further supported this view.
Relying on the observation of the Bombay High Court in the case of ‘The Chamber of Tax Consultants v. Director General of Income Tax (Systems), the ITAT noted that the CPC’s automated systems and logic cannot override a taxpayer’s statutory rights and that this reinforced the Tribunal’s duty to examine the claim beyond the CPC’s system-driven denial.
The above decision should also serve as a booster dose for taxpayers who have been diffident in claiming this benefit in their ITRs for AY 2025-26, due for filing by September 15, 2025.
