Sovereign Gold Bonds Scheme(SGB) -2018-19
- GS Mains Paper- 3
Why in news?
- Government of India, in consultation with the Reserve Bank of India, has decided to issue Sovereign Gold Bonds (SGB) -2018-19.
What is SGB?
- SGBs are government securities denominated in grams ofgold.
- They are substitutes for holding physicalgold.
- Investors have to pay the issue price in cash and thebonds will be redeemed in cash on maturity.
- The Bond is issued by Reserve Bank on behalf of Government of India.
Who will be selling these bonds?
The Bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognised stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange Limited.
What are the features of the Gold Bond Scheme?
- Resident entities including individuals, HUFs, Trusts, Universities and Charitable Institutions are eligible of having GBS.
- Tenor- 8 years with exit option in 5th, 6th year and 7th year to be exercised on the interest payment dates.
- Maximum limit is of 4 KG for individual, 4 Kg for HUF and 20 Kg for trusts and similar entities per fiscal (April-March) notified by the Government from time to time.
- In case of joint holding, the investment limit of 4 KG will be applied to the first applicant only.
- Issue price is fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited for the last 3 working days of the week preceding the subscription period.
- The issue price of the Gold Bonds will be `50 per gram less for those who subscribe online and pay through digital mode.
- Payment option is through cash payment (up to a maximum of 20,000) or demand draft or cheque or electronic banking.
- The Gold Bonds will be issued as Government of India Stock under GS Act, 2006.
- The investors will be issued a Holding Certificate for the same.
- The Bonds are eligible for conversion into demat form.
- Interest rate- Fixed rate of 2.50 percent per annum payable semi-annually on the nominal value
- Collateral- Bonds can be used as collateral for loans.
- The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the RBI from time to time.
- The lien on the bonds shall be marked by the depositary by the authorized banks.
- The loan against SGBs would be subject to decision of the lending bank/institution and cannot be inferred as a matter of right by the SGB holder.
- Know-your-customer (KYC) norms will be the same as that for purchase of physical gold.
- KYC documents such as Voter ID, Aadhaar card/PAN or TAN /Passport will be required.
- Every application must be accompanied by the ‘PAN Number’ issued by the Income Tax Department to the investor(s).
- The interest on Gold Bonds shall be taxable as per the provision of 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 term capital gains arising to any person on transfer of bond.
- Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date, as notified by the RBI.
- Bonds acquired by the banks through the process of invoking lien/hypothecation/pledge alone shall be counted towards Statutory Liquidity Ratio.
- Commission for distribution of the bond shall be paid at the rate Rupee one per hundred Rupees the total subscription received by the receiving offices and receiving offices shall share at least paise 50 per hundred Rupees of the commission so received with the agents or sub agents for the business procured through them.