Fourth tranche of Sovereign Gold Bonds to open on 18 July

The Reserve Bank of India has decided to issue the fourth tranche of Government of India Sovereign Gold Bonds from 18 July. Applications for the bond will be accepted from 18 to 22 July 2016  and the bonds will be issued on 5 August 2016.

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.

It may be recalled that finance minister Arun Jaitley had announced in the Union Budget 2015-16 about developing a financial asset, Sovereign Gold Bond, as an alternative to purchasing metal gold.

So far, three tranches of issuances have been undertaken during 2015-16.

The sale of bonds is restricted to resident Indian entities, including individuals, HUFs, trusts, universities and charitable Institutions.

The bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.

It will have a tenor of eight years with exit option from fifth year to be exercised on the interest payment dates.

Minimum permissible investment will be 1 gram of gold and the maximum amount that an entity cab subscribed to will not be more than 500 grams per fiscal year (April-March). A self-declaration to this effect will be obtained.

In case of joint holding, the investment limit of 500 grams will be applied to the first applicant only.

The price of the 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 week (Monday to Friday) preceding the subscription period.

Payment for the bonds will be through cash payment (up to a maximum of Rs20,000) or demand draft or cheque or electronic banking.

The bond will be Government of India stock under GS Act, 2006. The investors will be issued a holding certificate. The bonds are also eligible for conversion into demat form.

The redemption price of the band will be in Indian rupees based on previous week's (Monday-Friday) simple average of closing price of gold of 999 purity published by IBJA.

These bonds will be sold through 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.

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 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.

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.

The interest on gold bonds will be taxable as per the provision of Income Tax Act, 1961 (43 of 1961). 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/NDS-OM from a date to be notified by RBI. The bonds will also be eligible for Statutory Liquidity Ratio purposes.

Commission for distribution of the bond will be paid at the rate of 1 per cent of the total subscription received by the receiving offices and receiving offices shall share at least 50 per cent of the commission so received with the agents or sub agents for the business procured through them.