- No Loss on Death: Sovereign Gold Bonds stay active after the holder dies. They continue to earn interest.
- Two Ways to Transfer: Demat bonds move through stock brokers. Physical bonds move through bank receiving offices.
- Zero Capital Gains Tax: Under Section 47(viic) of the Income Tax Act, RBI redemption remains 100% tax-free for heirs.
- Nominee is a Caretaker: The Supreme Court rules that a nominee holds gold bonds as a trustee for all legal heirs.
- Old Cost is Kept: Under Section 49(1), the legal heir inherits the original purchase price and holding period.
- Wills Prevent Fights: A registered Will naming the exact heir stops disputes and speeds up transmission.
Sovereign Gold Bonds are popular investments in India. The Reserve Bank of India issues them on behalf of the central government. They pay two point five percent interest each year. They also offer tax-free gains when held for eight years.
When an investor dies, families face big questions. Do the gold bonds freeze? Can the nominee claim the bonds right away? Does the legal heir still get tax-free gains on final maturity?
The short answer is yes. SGBs transfer smoothly under the Government Securities Act, 2006. Also, under Section 47(viic) of the Income Tax Act, the tax exemption stays intact. In this guide, we explain the rules for demat and physical bonds. We also show how heirs claim their bonds without delays. You can check your family shares with our free succession calculator and review our will drafting checklist.
1. RBI Rules for SGB Transmission After Death of Holder
Sovereign Gold Bonds are government securities. The RBI issues them under the Government Securities Act, 2006. When a bond holder dies, the bonds do not freeze. They do not lapse. They can transfer to the nominee or legal heirs before maturity.
In law, this transfer upon death is called transmission. Transmission happens by operation of law. The RBI has clear rules for both demat and bank bonds. Once transmission ends, the new holder steps into the shoes of the deceased. The new holder gets all future interest payouts. They also get the final redemption money from the RBI.
Government securities are transferable upon the death of the holder. The Bank or receiving office transfers the security to the registered nominee or legal heir. This discharges the government from liability while protecting the legal rights of heirs.
2. Demat vs Physical SGB: Two Different Transmission Tracks
To transfer SGBs after death, check how the deceased held them. There are two holding formats in India:
- Track 1: Demat Mode: The bonds sit in an electronic demat account. This account is with NSDL or CDSL. Brokers like Zerodha, Groww, ICICI Direct, or HDFC Securities manage these accounts.
- Track 2: Physical Mode: The bonds sit in the RBI e-Kuber ledger. Receiving offices manage these bonds. These include public and private banks, Post Offices, and SHCIL. The investor gets an official Certificate of Holding.
Each format has its own process:
For Demat SGBs, work with the stock broker depository participant. The broker handles the entire transfer. Your bank cannot help with demat bond transfers.
For Physical SGBs, visit the exact bank branch or Post Office where the bonds were bought. The bank verifies your claim. It updates the RBI e-Kuber portal. It then issues a fresh Certificate of Holding in your name.
3. Capital Gains Tax Exemption on Maturity: Section 47(viic)
Many families worry about tax on inherited gold bonds. Under the Income Tax Act, 1961, the rules are clear and investor friendly:
First, Section 47(viic) exempts SGB redemption from capital gains tax. When an individual redeems SGBs with the RBI, the law does not treat it as a transfer. Therefore, capital gains at maturity are 100% tax-free.
Second, Section 47(iii) confirms that transmission of property under a Will or by inheritance is not a taxable transfer. No tax is due when bonds transfer to an heir upon death.
Third, Section 49(1) protects your cost basis. The legal heir takes the original purchase cost paid by the deceased.
Fourth, Section 2(42A) adds the holding period of the deceased to the heir's holding period.
This creates a major financial benefit. When an heir inherits SGBs and holds them until RBI redemption, all capital gains remain 100% tax-free. This applies to early redemption at year 5, 6, or 7. It also applies to final maturity at year 8.
Be careful about one scenario. If the heir sells inherited demat bonds on the stock exchange (NSE or BSE), the Section 47(viic) exemption does not apply. In that case, regular capital gains tax applies.
Also remember that annual interest of 2.5% is not tax-free. It is taxed as Income from Other Sources at your regular income tax slab rate.
Section 47(iii) ITA: Transmission by inheritance is not a taxable transfer
Section 47(viic) ITA: Exemption applies fully to lawful legal heirs on redemption
Selling on NSE/BSE before RBI redemption attracts regular capital gains tax
4. Comparison: Demat SGB vs Bank e-Kuber Transmission
The table below summarizes the key operational differences between transmitting Demat SGBs and Physical Certificate SGBs:
| Transmission Parameter | Demat SGB Mode (NSDL / CDSL) | Physical / e-Kuber Mode (Bank / Post Office) |
|---|---|---|
| Primary Authority | Stock Broker / Depository Participant (DP) | Bank Receiving Office / Post Office / SHCIL |
| Statutory Claim Form | Transmission Request Form (TRF) for Demat | Form T under Government Securities Regulations |
| Required Claimant Account | Active Demat Account in Claimant's Sole Name | Active Savings Bank Account for Mandate Credit |
| Nominee Claim Timeline | Typically 7 to 15 business days | Typically 15 to 30 business days (e-Kuber update) |
| Fresh Document Issued | Bonds appear in Claimant's Demat Statement | Fresh Certificate of Holding issued by Bank |
| No Nominee Registered | Indemnity bond (under threshold) or Succession Certificate | Section 9 GSA determination or Succession Certificate |
5. Supreme Court Precedent: SGB Nominee vs Legal Heirs
Many bondholders believe that naming a nominee makes that person the sole owner of the gold bonds. Families assume that other legal heirs have no claim once a nominee is named.
Under Indian succession law, this assumption is wrong. A nomination is only an administrative step. It helps the bank release funds safely. It does not decide true ownership.
Looking at government certificates and securities, the Supreme Court held that nomination does not give full title. The nominee only collects payment from the government. The money belongs to all legal heirs under personal succession law.
The Supreme Court reaffirmed that financial nominations in securities, shares, and bonds do not override inheritance laws. Nominees hold the asset strictly in trust for all legal heirs.
This means the bank transfers the bonds to the nominee. But the nominee must answer to the legal heirs. If the holder died without a Will, Class 1 heirs like a mother, wife, or children can claim their legal share.
6. SGB Transmission Flowchart and Estate Distribution Rules
To avoid delays, claimants should follow the standard transmission path set by RBI rules:
The nominee submits the death certificate, KYC, and Form T (for bank) or TRF (for demat). Transmission finishes without needing court orders.
The beneficiary presents the registered Will and death certificate. The receiving office verifies the bequest and transfers bonds to the named heir.
Under RBI threshold rules and Section 9 of GSA 2006, claims within specified monetary limits may be settled against an Indemnity Bond, Affidavit, and family NOCs.
The receiving office or DP mandates a Succession Certificate issued by the competent Civil Court or Letters of Administration before releasing bond units.
7. Step-by-Step Procedure to Claim SGB After Holder Demise
To transfer Sovereign Gold Bonds after the death of a family member, follow these six steps:
Get original death certificates. Locate the SGB investor ID, original Certificate of Holding, or demat statement showing bond tranche names.
Gather PAN card, Aadhaar card, and a cancelled cheque from an active savings account in the claimant's sole name for future interest payouts.
For physical bonds, submit Form T to the bank receiving office. For demat bonds, submit the Transmission Request Form (TRF) to your stock broker.
If no nominee was named, submit notarized affidavits, family release deeds, or a court Succession Certificate.
The bank updates the RBI portal and issues a revised Certificate of Holding, or the broker adds bond units to your demat account.
To get 100% tax-free gains under Section 47(viic), submit your redemption form to the RBI at years 5, 6, 7, or final maturity at year 8.
8. Model Will Clause for Sovereign Gold Bonds
To stop family disputes and make sure your bonds pass smoothly, use this simple clause in your legal Will:
Note: Keep your bank or broker nomination matched with this Will clause to ensure swift transfer.
9. How a Registered Will and Matching Nomination Prevents This Delay
The best way to protect your gold bond investments is to combine an active RBI nomination with a registered Will. When your nomination and Will match, the legal process is fast and simple.
A registered nomination lets the bank or broker complete transmission quickly without waiting for court orders. At the same time, the registered Will proves legal ownership. It stops other relatives from challenging the nominee's title under general inheritance laws.
Without a registered Will, even a nominee faces legal risks from other heirs. Getting a succession certificate in court takes many months. It brings high lawyer fees and missed interest payouts.
Drafting an airtight Will takes less than 15 minutes. You can draft your legal Will online right now using our guided platform at WillDrafting.in. If you need advocate advice or estate planning for high-value bonds, contact our legal team at AMA Legal Solutions. You can also explore our guidance on creating an estate plan with our will drafting checklist.
