Sovereign Gold Bonds Are Effectively Dead: What NRIs Holding Inherited or Legacy SGBs Should Do Now

The Sovereign Gold Bond was the best gold instrument India ever built: it paid you 2.5% interest a year on top of the gold price, and if you held it the full eight years, the capital gain on redemption was completely tax-free. No gold ETF, no coin, no digital-gold app comes close to that combination. And it is now effectively dead. The government stopped issuing new tranches after February 2024, confirmed in the Budget 2025 briefing that no more were coming, and then in Budget 2026 it quietly gutted the one feature that made the bond special, the tax-free redemption, for everyone except original subscribers who hold to maturity. If you are an NRI holding SGBs you bought as a resident, or bonds you inherited, the scheme you are sitting in has just changed underneath you.

The 30-second answer: Sovereign Gold Bonds were halted in Budget 2025 (no new tranches since the February 2024 series) because the borrowing cost ran too high as gold prices climbed, and Budget 2026 removed the tax-free redemption for premature exits and secondary-market buyers from 1 April 2026. NRIs could never buy SGBs anyway, so this matters only if you hold legacy bonds bought as a resident or inherited ones. If you are an original subscriber, hold to maturity: the gain stays tax-free and you keep the 2.5% interest. For new gold exposure, a gold ETF is the cleanest route for NRIs, long-term after 12 months at 12.5% without indexation, versus 24 months for gold mutual funds.

This guide is about a specific reader: an NRI who is not trying to buy SGBs, because that was never possible, but who already holds them through a past resident purchase or an inheritance, and now has to decide whether to sit tight or get out. It also lays out, with the actual numbers, which gold route replaces the bond for an NRI building India exposure today. For the wider Budget picture, Budget 2026: what changed for NRIs covers the rest.

Why the government pulled the plug

The SGB was launched in 2015 to do two things: give Indians a paper alternative to hoarding physical gold, which would cut imports and ease the current account, and give the government a cheaper way to borrow than issuing ordinary government securities. On the second count it failed badly, and that is what killed it.

The arithmetic turned against the Treasury. When you buy an SGB, the government owes you the gold price at redemption plus 2.5% interest every year along the way. As long as gold rose gently, that was a manageable liability. But gold ran hard from 2023 onward, and the redemptions started coming in far above issue price. The bonds issued in 2015 and 2016 matured returning two to three times the money invested, with the government covering the full appreciation in cash. Economic Affairs Secretary Ajay Seth said plainly that SGBs had become a high-cost method of borrowing compared with traditional bonds, and that the expected drop in gold imports never materialised. In other words, the scheme cost the government a fortune and did not deliver the import discipline it was supposed to.

So in the Budget 2025 post-briefing, Finance Minister Nirmala Sitharaman confirmed there were no plans to launch further tranches. The official framing was not "abolished" but "paused": new issues would return only when SGBs became cost-effective against G-Secs again, which in practice means when gold stops rising sharply. Nobody in the market is holding their breath. The last tranche was Series IV of 2023-24, issued in February 2024, and there has been nothing since.

Budget 2026 went a step further and changed the rules for the bonds already outstanding. Previously, the capital gain on redemption at maturity was tax-exempt under Section 47(viic), and over time a quiet secondary practice grew around that: people paid a premium of 10% to 15% over the bond's intrinsic gold value on the exchange, precisely because buying a near-maturity SGB and redeeming it gave a tax-free exit. Budget 2026 closed that door. From 1 April 2026, the redemption exemption applies only to original subscribers who hold the bond continuously until maturity. Secondary-market buyers lose it entirely, even if they hold to maturity, and premature redemption loses it for everyone, even after the lock-in. The honest reading of that change is that it was aimed at the secondary-market arbitrage, but it caught a lot of ordinary holders in the blast radius, and it has more or less wiped out the exchange premium overnight.

NRIs could never buy these, so let us be precise about who this affects

There is a great deal of confusing content online aimed at NRIs wanting to "invest in SGBs". Ignore it. Under FEMA and the scheme's own eligibility rules, SGBs were restricted to resident individuals, Hindu Undivided Families, trusts, universities and charitable institutions. A non-resident was never eligible, not in the primary issue and not by buying on the exchange. If a platform told you otherwise, it was wrong.

So there are exactly two ways an NRI legitimately holds SGBs, and both are about the past, not a fresh purchase.

The first is the classic case: you bought SGBs while you were still a resident, then took a job abroad and became an NRI. Your change of residency does not force you to sell. The RBI's scheme rules fix eligibility at the time of subscription, and a later change in status lets you continue to hold to the eight-year maturity or take the early-redemption window that opens after year five. You simply keep holding what you bought as a resident.

The second is inheritance. If you are named as a nominee on an SGB, or you inherit one as a legal heir, you can take the bonds even as an NRI, subject to the paperwork the registrar asks for. The important constraint here is repatriation: the interest and the maturity proceeds on an inherited or legacy SGB are non-repatriable, and must be credited to your NRO account, not an NRE one. From there, moving the money out runs through the usual NRO repatriation route, the USD 1 million per financial year limit, Form 15CA and 15CB, and so on, which the building an India corpus guide covers in context.

What this means in practice: if you are reading this hoping to learn how to buy a gold bond, stop, that ship sailed for residents in 2024 and was never available to you. The rest of this guide is for the two people above, and for any NRI deciding which gold route to use instead.

Hold to maturity or exit: the decision for original subscribers

If you are an original subscriber, meaning you bought the SGB yourself as a resident in one of the tranches, the Budget 2026 change actually leaves your best feature intact. The maturity redemption stays tax-free for you, as long as you hold continuously to the eight-year mark. You also keep the 2.5% annual interest, which is taxable as income from other sources at your slab rate with no TDS, and on the maturity gain you pay nothing. That is still a remarkable deal, and there is no reason to throw it away.

The trap is the premature exit. The early-redemption window that opens after five years used to be a clean, tax-free way out. From 1 April 2026, premature redemption is taxable even for original subscribers, even after the lock-in. So the timing of an early exit now matters enormously.

Put real numbers on it. Suppose Anjali bought SGBs as a resident in 2018 for Rs 10,00,000 when gold was around Rs 30,000 for 10 grams. By early 2026 those bonds are worth about Rs 28,00,000, a gain of Rs 18,00,000, and she has moved to London and become an NRI. She is past the five-year mark, so the early-exit window is open.

If she holds to the 2026 maturity and lets the bonds redeem, she pays zero capital gains tax on the Rs 18,00,000 as an original subscriber holding continuously. If instead she takes a premature redemption on, say, 15 April 2026, after the rule changed, that same Rs 18,00,000 is now a taxable long-term capital gain at 12.5%, roughly Rs 2,25,000 plus cess, on a gain she could have taken tax-free a few weeks earlier by simply doing nothing. Had she needed the cash and redeemed early before 1 April 2026, the exit would still have been exempt under the old rule. The cost of getting the date wrong here is the entire tax bill.

So the decision tree for an original subscriber is short. If your bonds mature soon, hold to maturity and take the gain tax-free. If you genuinely must exit early and the date is still before 1 April 2026, redeem early and keep the exemption. If you must exit early and it is already past that date, you have a choice between a premature redemption to the RBI (taxable at 12.5% long-term) or a sale on the exchange (also taxable, and now without the old premium because the buyer no longer gets a tax break either). For most original-subscriber NRIs, none of these beats simply holding the legacy bond to maturity and collecting 2.5% along the way. Hold.

The harder case: bonds you inherited or bought on the secondary market

The reader who actually has a problem is the one holding SGBs that are not an original subscription. This is most inherited bonds, and it is anyone who somehow acquired them on the exchange.

The reason it is harder is the same Budget 2026 line. The maturity exemption is for original subscribers only. When you inherit an SGB as a nominee or legal heir, you are not the original subscriber, you are a transferee. The plain reading of the amended provision, and the way most tax commentators are interpreting it, is that a transferee, including an inheritor, does not get the tax-free maturity redemption for redemptions on or after 1 April 2026. The gain on redemption becomes a taxable long-term capital gain at 12.5% without indexation, the same rate as any other paper gold.

There is a genuine open question here, and the honest framing is that the law is fresh and untested. Some practitioners argue that an inheritor should "step into the shoes" of the deceased original subscriber and inherit the exemption along with the bond, on the principle that inheritance is not a transfer for capital gains purposes. Others read the amended exemption as personal to the original subscriber and lost on death. The position is debated, the amendment is from Budget 2026, and there is no settled clarification or case law yet. If you are an NRI sitting on a large inherited SGB holding, this is exactly the point to pay a chartered accountant to take a view for your specific bonds and year, rather than assume either way.

Here is what that uncertainty does to a real number. Suppose Rohit, a US-based NRI, inherits SGBs from his late father with a cost in his father's hands of Rs 5,00,000 and a value at the 2027 maturity of Rs 11,00,000, a gain of Rs 6,00,000. If the inheritor-keeps-the-exemption reading holds, Rohit pays nothing at maturity. If the exemption-is-lost reading holds, he pays 12.5% on Rs 6,00,000, about Rs 75,000 plus cess. That is the spread riding on an unresolved point of law. For Rohit specifically, there is a second layer: as a US person, his Indian gold mutual funds would be PFICs, but a direct SGB is a debt instrument, not a fund, so the PFIC overlay that complicates his other gold options does not bite on the bond itself. That is a quiet reason for a US-based inheritor to think twice before swapping out of an inherited SGB into a gold fund.

For a secondary-market holder, there is no ambiguity at all. You are not the original subscriber, the exemption is gone, and your redemption is a plain 12.5% long-term gain. The 10% to 15% premium you may have paid on the exchange to capture the old tax break is now a sunk cost with nothing behind it. If you are holding such bonds and the premium has not yet fully unwound in the market, selling sooner rather than later may limit the bleed, but that is a market-timing call, not a tax one.

What replaces the SGB for an NRI building gold exposure

If the bond is gone and you still want gold in your India portfolio, the question becomes which of the remaining routes to use. There are four: gold ETFs, gold mutual funds, digital gold, and physical gold. For an NRI, they are not equal, and the deciding factors are the holding-period clock, the tax rate, the GST drag, and whether you can even access the product from abroad.

The headline tax rate is the same across all paper and digital gold: long-term capital gains at 12.5% without indexation, with short-term gains taxed at your slab rate. Indexation was removed for gold in the 2024-2026 reforms, so there is no inflation adjustment to shelter the gain any more. What differs is how long you must hold to reach the long-term rate, and that difference is the whole game.

A gold ETF is listed on the exchange, so it gets the shorter clock. For units bought on or after 1 April 2025, a holding of more than 12 months is long-term, taxed at 12.5%. A gold mutual fund is unlisted, so it carries the longer 24-month clock to reach the same 12.5% rate. That is a full year's difference in how quickly your gains turn long-term, for an identical underlying asset. For an NRI who can hold an Indian demat account, the ETF is simply the more tax-efficient wrapper.

The gap is easiest to see with one number held two ways. Suppose Meera, a UAE-based NRI, puts Rs 10,00,000 into gold in April 2025 and sells in July 2026, roughly 15 months later, with the holding now worth Rs 12,00,000, a gain of Rs 2,00,000. If she used a gold ETF, 15 months is past the 12-month line, so the gain is long-term at 12.5%, about Rs 25,000. If she used a gold mutual fund, 15 months is short of the 24-month line, so the same Rs 2,00,000 is short-term and taxed at her slab rate. For a UAE resident with little other Indian income the slab may be low, but for a higher-income NRI taxed at 30%, that is Rs 60,000 instead of Rs 25,000, a difference of Rs 35,000 on the same trade, purely from the wrapper. The ETF wins on the clock.

Two caveats sit on top of that. First, TDS: as an NRI, your gold ETF and gold mutual fund redemptions attract TDS at source, deducted on the gain, which you reconcile when you file. A resident selling the same units faces no such withholding on listed equity-style instruments, so expect cash to be held back and plan for the refund timing. Second, access: opening or maintaining an NRI demat account for ETFs is more involved than holding a mutual fund through an NRO-linked folio, so some NRIs end up in gold funds simply because the ETF route is harder to set up from abroad. If that is you, the 24-month clock is the price of convenience, and an SIP into a gold fund is a perfectly reasonable way to build the position over time.

Digital gold is the convenient-looking option that I would steer most NRIs away from. It is not regulated by the RBI or SEBI as an investment product, it carries a 3% GST on purchase that immediately puts you underwater, and the platforms charge spreads on both buy and sell. On sale it is taxed like physical gold, long-term at 12.5% after 24 months. The combination of an upfront GST hit, an unregulated structure, and the long clock makes it the weakest of the paper-gold routes for anyone treating gold as an investment rather than a gift.

Physical gold only makes sense if you actually want the metal, jewellery you will wear or pass on, a coin you want to hold. You pay 3% GST on the gold and another 5% GST on making charges for jewellery, none of which you recover on resale, and the long-term clock is 24 months at 12.5%. As pure investment exposure it is the worst of the four after fabrication costs. As an heirloom it is fine, but price it as a purchase, not a portfolio holding.

The full route-by-route comparison, including how each interacts with NRE versus NRO funding and repatriation, is in gold investment options for NRIs, and where gold should sit in the overall mix is covered in NRI portfolio asset allocation.

A decision table for the gold route

Route	Long-term after	Long-term rate	The thing to watch
Gold ETF	12 months	12.5%, no indexation	Needs NRI demat; TDS on redemption; cleanest tax clock
Gold mutual fund	24 months	12.5%, no indexation	Easier from abroad via NRO folio; longer clock; PFIC for US/Canada
Digital gold	24 months	12.5%, no indexation	3% GST on buy; unregulated; platform spreads
Physical gold	24 months	12.5%, no indexation	3% GST plus 5% on making; only for jewellery you will use
Legacy SGB (original subscriber)	Hold to 8-yr maturity	Tax-free at maturity	Premature exit taxable from 1 Apr 2026; hold to maturity

Edge cases

The US and Canada PFIC overlay. If you are a US or Canada tax resident, an Indian gold mutual fund is almost certainly a Passive Foreign Investment Company in the eyes of the IRS or the CRA, which triggers punitive tax and onerous reporting on your home return. A gold ETF can also fall into PFIC territory. A directly held SGB, by contrast, is a debt instrument rather than a pooled fund, so the PFIC rules do not apply to it. That asymmetry is a real reason for a US or Canada based inheritor to think hard before redeeming an inherited SGB and rotating into a gold fund, even with the maturity exemption in doubt. Get the capital gains treatment for NRIs and your home-country adviser aligned before you move.

Interest is taxable even when the gain is not. The 2.5% annual SGB interest is taxable as income from other sources at your slab rate, with no TDS deducted, for every holder including original subscribers. The tax-free feature only ever applied to the capital gain on maturity redemption, never to the interest. If you have been collecting SGB interest into an NRO account and not declaring it, that is a separate compliance gap to fix, regardless of the redemption question.

Premature redemption before 1 April 2026 is still exempt. The Budget 2026 amendment is prospective. A premature withdrawal completed before 1 April 2026 stays exempt under the old rule, even for a secondary-market holder. If you have a hard reason to exit a legacy or even a secondary bond and the calendar still allows it, completing the redemption before that date preserves the exemption. After it, the gain is taxable.

Repatriation of the proceeds. Whatever you redeem, the money lands in an NRO account and is non-repatriable by default. Moving it abroad runs through the NRO repatriation route, the USD 1 million per financial year ceiling, and Form 15CA and 15CB certification. Factor that timeline in before you treat redeemed SGB money as instantly available overseas.

The closing read

The honest read is that the government gave Indians one genuinely excellent gold instrument and has now methodically dismantled it: no new issues since February 2024, a confirmed halt in Budget 2025, and the tax-free redemption stripped from everyone except original subscribers holding to maturity in Budget 2026. For NRIs the practical conclusions are clean. You could never buy these, so if you hold them at all, you are either an original subscriber or an inheritor, and the right move depends on which.

If you are an original subscriber, hold your legacy bonds to maturity, full stop. The maturity gain stays tax-free for you, you keep the 2.5% interest, and any premature exit on or after 1 April 2026 needlessly converts a tax-free gain into a 12.5% bill. There is no better gold instrument available to you than the one you already hold, so do not trade out of it.

If you inherited the bonds, the maturity exemption is genuinely uncertain, so get a CA to take a view on your specific holding before you decide, and if you are a US or Canada person, weigh the PFIC trap before rotating into a gold fund. And if you are building fresh gold exposure, use a gold ETF for the 12-month long-term clock if you can hold an NRI demat account, fall back to a gold mutual fund via your NRO folio if the demat route is too much friction from abroad, and treat digital and physical gold as convenience and jewellery respectively, not as portfolio gold. The bond era is over. The replacement is a worse deal, but it is the deal we have, and the wrapper you choose still decides how much tax you pay.

Related guides

• Budget 2026: what changed for NRIs
• Gold investment options for NRIs
• NRI portfolio asset allocation
• Capital gains tax for NRIs on shares and mutual funds
• Building an India corpus as an NRI
• All News and analysis
• All Investments guides

This guide is educational and general in nature. It is not individual tax or investment advice. The Budget 2026 SGB amendment is new and parts of it, particularly the treatment of inherited bonds, are not yet settled by clarification or case law, and several gold tax rules changed across 2024 to 2026 and may change again. Confirm your specific position, your residency, and your home-country tax overlay with a qualified chartered accountant and adviser before you redeem, sell or buy.