Sovereign Green Bonds

In the Union Budget for the financial year 2022-23, the government announced the launch of Sovereign Green Bonds (SGrBs) to raise funds for green infrastructure projects, aligning with its goal of reducing the Indian economy's carbon intensity. These bonds demonstrate the nation’s commitment to promoting renewable energy, mitigating climate change, and fostering sustainable infrastructure development, offering investors an opportunity to contribute to a greener economy while earning returns.

Table of Contents:

• ⇾ Understanding Sovereign Green Bonds
• ⇾ Sovereign Green Bonds Interest Rate
• ⇾ Benefits of Buying Sovereign Green Bonds (SGB)
• ⇾ Eligibility Criteria for Sovereign Green Bond
• ⇾ Steps to Invest in a Sovereign Green Bond
• ⇾ Tax Implications on Sovereign Green Bonds (SGB)
• ⇾ Frequently Asked Questions

Sovereign Green Bonds Issue Date

RBI has announced the release of Sovereign Green Bonds (SGrB) in the second half of the financial year 2024-25. Let’s go through the tentative Sovereign Green Bonds issue dates for FY24-25 from below:

Understanding Sovereign Green Bonds

Sovereign Green Bonds (SGBs) are government-issued financial instruments designed to fund projects with positive environmental impacts, aligning with climate goals and sustainable development. Unlike standard bonds, SGBs are strictly dedicated to environmentally friendly initiatives such as renewable energy, clean transportation, and green buildings.

The table below highlights how Sovereign Green Bonds differ from standard bonds and emphasizes their role in supporting climate and environmental objectives.

Sovereign Green Bonds Interest Rate

The interest rates on Sovereign Green Bonds (SGBs) are attractive and vary depending on their issuance date and tenure. Below is a detailed table showing the interest rates, outstanding stock, and other relevant details for SGBs issued to date.

Benefits of Buying Sovereign Green Bonds (SGB)

Investing in Sovereign Green Bonds (SGBs) offers a unique opportunity for individuals and institutions to contribute to sustainability while enjoying financial returns. These bonds finance green projects and provide strategic economic advantages, reinforcing both environmental and financial stability.

• Support for Sustainability Goals: SGBs finance renewable energy, clean transportation, and other eco-friendly projects, helping combat climate change and foster sustainable development.
• Strengthening Local Currency: Issued in local currency, SGBs attract domestic and foreign investors, boosting confidence in and stability of the Indian rupee.
• Higher Demand and Returns: The limited supply of green bonds and increasing investor preference for socially responsible investments can drive higher bond prices and yields.
• Mitigation of Currency Risk: By issuing SGBs in rupees, India reduces exposure to foreign exchange volatility caused by geopolitical and global economic factors.
• Attractive Yields: Green bonds often offer higher yields compared to traditional debt instruments, making them a lucrative investment option.
• Encouragement of Foreign Investment: Green bonds appeal to environmentally conscious global investors, fostering foreign capital inflows into India.

Eligibility Criteria for Sovereign Green Bond

The Reserve Bank of India (RBI) has outlined a comprehensive eligibility framework for investing in Sovereign Green Bonds (SGBs) to ensure accessibility to both domestic and international investors. These criteria enable a broad range of investors, including retail and institutional participants, to contribute to India’s sustainability goals.

• Retail Investors:Indian residents can invest directly through the RBI Retail Direct website or brokerage firms.
• Non-Resident Indians (NRIs): NRIs can invest in SGBs as specified securities under the Fully Accessible Route (FAR).
• Persons Resident Outside India (PROIs): PROIs, a broader category than NRIs, are also eligible to invest in SGBs.
• Foreign Portfolio Investors (FPIs): FPIs are permitted to invest in SGBs under the FAR.
• Overseas Citizens of India (OCIs): OCIs are eligible to participate in SGB investments.
• IFSC Banking Units: Banking units operating in International Financial Services Centres (IFSCs) without a physical presence in India are eligible.
• Financial Institutions without Indian Presence: Financial institutions or their branches without a presence in India and not originating from high-risk jurisdictions are eligible to invest.
• Fund Management Entities under IFSCA: Funds established as management entities under IFSCA (International Financial Services Centres Authority), even without an Indian presence, are also eligible.

Steps to Invest in a Sovereign Green Bond

Investing in Sovereign Green Bonds (SGBs) is a straightforward process that is similar to investing in other government securities like G-Secs or T-Bills. Retail investors can participate through non-competitive bidding or via online trading platforms, ensuring an accessible route for contributing to sustainable investments.

• Open a Retail Direct Gilt Account: Register on the RBI Retail Direct platform or consult with your brokerage firm.
• Non-Competitive Bidding: Participate directly through the Retail Direct Gilt Account or submit bids via an aggregator or facilitator.
• Use Online Trading Platforms (Example: Zerodha Kite):
  • Log in to your trading account (e.g., kite.zerodha.com).
  • Navigate to the "Bids" section.
  • Select "Government Securities" and locate Sovereign Green Bonds.
  • Place your bid during the issue window.
• Ensure Fund Availability: Maintain sufficient funds in your trading or linked bank account to cover the purchase.
• Confirmation and Allocation: Once the bidding process is complete, bonds will be credited to your investment account upon allocation.

Tax Implications on Sovereign Green Bonds (SGB)

Investing in Sovereign Green Bonds (SGBs) comes with specific tax implications, varying based on the type of investor, holding period, and method of sale or redemption. The tax treatment for SGBs aligns with government policies, encouraging sustainable investments while maintaining regulatory compliance. Here are the tax implications on Sovereign Green Bonds

For Retail Investors (NRIs & Residents): If Sold on Stock Exchange (NSE):

• Short-Term Capital Gains (STCG): If held for 12 months or less, STCG is taxed at 20% (for sales on or after July 23, 2024).
• Long-Term Capital Gains (LTCG): If held for more than 12 months, LTCG is taxed at 12.5% (for sales on or after July 23, 2024). Note that indexation benefits are not applicable.

If Redeemed at Maturity: Interest earned from SGBs is taxable as per the investor's applicable tax slab. Any gain or loss on redemption is treated as capital gain/loss, based on the holding period.

For SGBs in IFSC (International Financial Services Centre): Gains from SGBs traded by non-residents in IFSC may not be taxed under specific conditions. However, tax treatment for SGBs in IFSC is subject to evolving guidelines from the International Financial Services Centres Authority (IFSCA).

• Potential Tax-Free Gains in GIFT City IFSC: SGBs traded in GIFT City IFSC may benefit from exemptions applicable to non-residents under certain conditions. Representations are being made to exempt capital gains for non-residents trading SGBs in IFSC, aligning with other exemptions provided in the zone.