Government to issue Sovereign Gold Bonds from 26 November

Government of India will in consultation with the Reserve Bank of India (RB), issue Sovereign Gold Bonds on 26 November. The bonds will be sold through banks and designated post offices as may be notified.

Applications for the bond will be accepted from 5 November 2015 to 20 November 2015.

The borrowing through issuance of the bond will form part of market borrowing programme of Government of India, a finance ministry release said on Friday.

The finance minister had announced in the Union Budget 2015-16 about developing Sovereign Gold Bond as a financial asset and an alternative to purchasing gold metal.

The Reserve Bank of India will issue these `Sovereign Gold Bonds' on behalf of the Government of India.

Sale of these bonds will be restricted for sale to resident Indian entities, including individuals, HUFs, trusts, universities, charitable institutions.

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

The bonds will have a tenor of 8 years with exit option from the fifth year to be exercised on the interest payment dates.

Minimum permissible investment will be 2 units (ie 2 grams of gold) while the maximum amount subscribed by an entity will not be more than 500 grams per person per fiscal year (April-March). Person or entity buying the gold bonds will have to make a self-declaration to this effect.

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

The bonds will be issued in tranches. Each tranche will be kept open for a period to be notified. The issuance date will also be specified in the notification.

The price of the bond will be fixed in 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 Ltd (IBJA).

Payment for the bonds will be through electronic funds transfer/cash payment/ cheque/ demand draft.

Investors in the gold bonds will be issued a stock/holding certificate under the Government of India stock under GS Act, 2006. The bonds are eligible for conversion into demat form.

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

Bonds will be sold through banks and designated post offices, as may be notified, either directly or through agents.

Investors will be compensated at a fixed rate of of interest of 2.75 per cent per annum payable semi-annually on the initial value of investment.

The gold 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 shall be taxable as per the provision of Income Tax 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/NDS-OM from a date to be notified by RBI.

Banks can use these bonds for meeting Statutory Liquidity Ratio.

Commission for distribution of the gold bonds will be paid at the rate of 1 per cent of the subscription amount.