Centre to sell gold bonds from November

The government will issue sovereign gold bonds from November 26, offering an annual interest rate of 2.75 per cent to domestic investors.

These bonds will be sold through banks and designated post offices. The minimum permissible investment will be two grams of gold. Sovereign gold bond has been launched with the intention to prevent people from buying physical gold for investment purpose.

It is estimated that Indians buy around 300 tons of physical bars and coins every year for investment purpose.

The maximum amount subscribed by an entity will not be more than 500 grams per person per fiscal year. In case of joint holding, the investment limit of 500 grams will be applied to the first applicant only. The applications for the bond will be accepted from November 05, 2015 to November 20, 2015.

The principal amount of investment, which is denominated in grams of gold, will be redeemed at the price of gold at that time.

Upside gains and downside risks will be with the investor and the investors will need to be aware of the volatility in gold prices. Price of bond will be fixed in Indian Rupees on the basis of the previous week’s (Monday-Friday) simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association (IBJA).

The same procedure would be followed for calculating the redemption price for the bonds.

Payment for the bonds will be through electronic funds transfer, cash payment, cheque and demand draft. Bonds could be used as collateral for loans.

KYC norms will be the same as that for purchase of physical gold. KYC documents such as Voter ID, aadhaar card or PAN or TAN or passport will be required. The interest on gold bonds shall be taxable as per the provision of I-T Act, 1961 (43 of 1961) and the capital gains tax shall also remain same as in the case of physical gold.

Bonds will be tradable on exchanges from a date to be notified by the RBI.

The tenure of the bond will be for eight years with an exit option from fifth year to be exercised on the interest payment dates, the statement said.

The investors will be compensated at a fixed rate of 2.75 per cent per annum payable semi-annually on the initial value of investment. The Centre has been trying to wean away Indians from buying gold to control the current account deficit.