Context: Recently, the Government of India, in consultation with the Reserve Bank of India, has decided to issue Sovereign Gold Bonds under Sovereign Gold Bond Scheme 2020-21.
About Sovereign Gold Bond (SGB)

• SGBs are government securities denominated in grams of gold.
• They are substitutes for holding physical 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.

About Sovereign Gold Bond Scheme 2020-21
The Sovereign Gold Bonds will be issued in six tranches from April 2020 to September 2020.
The Bonds will be sold through:

• Scheduled Commercial banks (except Small Finance Banks and Payment 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.

Some of the key features of Sovereign Gold bond Scheme is as tabulated as follows:

• Eligibility: The bonds will be restricted for sale to resident Indian entities including individuals, HUFs, Trusts, Universities and Charitable institutions.
• Denomination: The bonds will be denominated in units of one gram of gold and multiples thereof.
• Minimum size: Minimum permissible investment will be 1 gram of gold.
• Maximum limit: 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time
• Interest rate: The investors will be compensated at a fixed rate of 2.50 % per annum payable semi-annually on the nominal value. The interest on Sovereign Gold Bonds is taxable as per the IT Act, 1961.
• Sales channel: Bonds will be sold through Commercial banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices (as may be notified) and recognised stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange, either directly or through agents.
• Tenor:  8 years with an exit option from 5th year onwards to be exercised on the interest payment dates.
• Redemption: Redemption price shall be fixed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited.
• Joint holder: In case of joint holding, the investment limit of 4 KG will be applied to the first applicant only.
• Issue price: Price of Bond will be 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.
• 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 Reserve Bank from time to time.
• KYC documentation: 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 individuals and other entities.
• Tax treatment: 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.
• Tradability: Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.
• SLR eligibility: Bonds acquired by the banks through the process of invoking lien/hypothecation/pledge alone, shall be counted towards Statutory Liquidity Ratio.
• Commission: Commission for distribution of the bond shall be paid at the rate of 1% of the total subscription received by the receiving offices and receiving offices shall share at least 50% of the commission so received with the agents or sub agents for the business procured through them.